TEFRA, DEFRA, and TAMRA 

If you’re considering using life insurance to build wealth, reduce taxes, or fund your future — you need to know about TEFRA, DEFRA, and TAMRA.

These three U.S. tax laws silently govern whether your policy qualifies for tax-free growth, tax-free access, and tax-free transfer. But most people — and many agents — don’t know how they work together.

Here’s the simple breakdown:

📘 1. TEFRA (1982): Protecting Tax Equity

The Tax Equity and Fiscal Responsibility Act was the IRS’s first step to ensure life insurance wasn’t being abused as a tax shelter.

🔹 It required real death benefit protection
🔹 Introduced early rules around overfunding
🔹 Set the stage for stricter regulation

📘 2. DEFRA (1984): Defining ‘Real’ Life Insurance

The Deficit Reduction Act tightened the screws.

🔹 Introduced the Guideline Premium Test (GPT) and Cash Value Accumulation Test (CVAT)
🔹 Limited how much money could go into a policy while keeping it “insurance” under IRS rules
🔹 Ensured a minimum death benefit relative to cash value

📘 3. TAMRA (1988): Drawing the Line on Overfunding

The Technical and Miscellaneous Revenue Act introduced the dreaded MEC (Modified Endowment Contract).

🔹 Too much premium paid too fast? Your policy becomes a MEC
🔹 MECs lose key tax advantages
🔹 Distributions are taxed LIFO — interest out first, taxed at your income rate

✅ Why It All Matters

If your life insurance policy fails any of these tests, it may:

• Lose its tax-free growth status
• Make loans and withdrawals taxable
• Turn into a glorified investment account (with IRS penalties)

That’s why the structure matters more than the product.

🎯 The Bottom Line

You don’t need to memorize the tax code — you just need to work with someone who does.

👉 At The Policy Shop, we design TEFRA-, DEFRA-, and TAMRA-tested policies that:

• Stay tax-compliant
• Maximize your cash value
• Keep your long-term strategy intact

📞 Let’s build a smarter policy — not just a policy.
Visit The Policy Shop for expert guidance.

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