[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.79-0]

[Page 310-311]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.79-0  Group-term life insurance--definitions of certain terms.

    The following definitions apply for purposes of section 79, this 
section, and Sec. Sec. 1.79-1, 1.79-2, and 1.79-3.
    Carried directly or indirectly. A policy of life insurance is 
``carried directly or indirectly'' by an employer if--
    (a) The employer pays any part of the cost of the life insurance 
directly or through another person; or
    (b) The employer or two or more employers arrange for payment of the 
cost of the life insurance by their employees and charge at least one 
employee less than the cost of his or her insurance, as determined under 
Table I of Sec. 1.79-3(d)(2), and at least one other employee more than 
the cost of his or her insurance, determined in the same way.
    Employee. An ``employee'' is--
    (a) A person who performs services if his or her relationship to the 
person for whom services are performed is the legal relationship of 
employer and employee described in Sec. 31.3401(c)-1; or
    (b) A full-time life insurance salesperson described in section 
7701(a)(20); or
    (c) A person who formerly performed services as an employee.

A person who formerly performed services as an employee and currently 
performs services for the same employer as an independent contractor is 
considered an employee only with respect to insurance provided because 
of the person's former services as an employee.
    Group of employees. A ``group of employees'' is all employees of an 
employer, or less than all employees if membership in the group is 
determined solely on the basis of age, marital status, or factors 
related to employment. Examples of factors related to employment are 
membership in a union some or all of whose members are employed by the 
employer, duties performed,

[[Page 311]]

compensation received, and length of service. Ordinarily the purchase of 
something other than group-term life insurance is not a factor related 
to employment. For example, if an employer provides credit life 
insurance to all employees who purchase automobiles, these employees are 
not a ``group of employees'' because membership is not determined solely 
on the basis of age, marital status, or factors related to employment. 
On the other hand, participation in an employer's pension, profit-
sharing or accident and health plan is considered a factor related to 
employment even if employees are required to contribute to the cost of 
the plan. Ownership of stock in the employer corporation is not a factor 
related to employment. However, participation in an employer's stock 
bonus plan may be a factor related to employment and a ``group of 
employees'' may include employees who own stock in the employer 
corporation.
    Permanent benefit. A ``permanent benefit'' is an economic value 
extending beyond one policy year (for example, a paid-up or cash 
surrender value) that is provided under a life insurance policy. 
However, the following features are not permanent benefits:
    (a) A right to convert (or continue) life insurance after group life 
insurance coverage terminates;
    (b) Any other feature that provides no economic benefit (other than 
current insurance protection) to the employee; or
    (c) A feature under which term life insurance is provided at a level 
premium for a period of five years or less.
    Policy. The term ``policy'' includes two or more obligations of an 
insurer (or its affiliates) that are sold in conjunction. Obligations 
that are offered or available to members of a group of employees are 
sold in conjunction if they are offered or available because of the 
employment relationship. The actuarial sufficiency of the premium 
charged for each obligation is not taken into account in determining 
whether the obligations are sold in conjunction. In addition, 
obligations may be sold in conjunction even if the obligations are 
contained in separate documents, each document is filed with and 
approved by the applicable state insurance commission, or each 
obligation is independent of any other obligation. Thus, a group of 
individual contracts under which life insurance is provided to a group 
of employees may be a policy. Similarly, two benefits provided to a 
group of employees, one term life insurance and the other a permanent 
benefit, may be a policy, even if one of the benefits is provided only 
to employees who decline the other benefit. However, an employer may 
elect to treat two or more obligations each of which provides no 
permanent benefits as separate policies if the premiums are properly 
allocated among such policies. An employer also may elect to treat an 
obligation which provides permanent benefits as a separate policy if--
    (a) The insurer sells the obligation directly to the employee who 
pays the full cost thereof;
    (b) The participation of the employer with respect to sales of the 
obligation to employees is limited to selection of the insurer and the 
type of coverage and to sales assistance activities such as providing 
employee lists to the insurer, permitting the insurer to use the 
employer's premises for solicitation, and collecting premiums through 
payroll deduction;
    (c) The insurer sells the obligation on the same terms and in 
substantial amounts to individuals who do not purchase (and whose 
employers do not purchase) any other obligation from the insurer; and
    (d) No employer-provided benefit is conditioned on purchase of the 
obligation.

[T.D. 7623, 44 FR 28797, May 17, 1979, as amended by T.D. 7917, 48 FR 
45762, Oct. 7, 1983]