[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.801-3]

[Page 593-595]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.801-3  Definitions.

    For purposes of part I, subchapter L, chapter 1 of the Code, this 
section defines the following terms, which are to be used in determining 
if a taxpayer is a life insurance company (as defined in section 801(a) 
and paragraph (b) of this section):
    (a) Insurance company. (1) The term insurance company means a 
company whose primary and predominant business activity during the 
taxable year is the issuing of insurance or annuity contracts or the 
reinsuring of risks underwritten by insurance companies. Thus, though 
its name, charter powers, and subjection to State insurance laws are 
significant in determining the business which a company is authorized 
and intends to carry on, it is the character of the business actually 
done in the taxable year which determines whether a company is taxable 
as an insurance company under the Internal Revenue Code.
    (2) Insurance companies include both stock and mutual companies, as 
well as

[[Page 594]]

mutual benefit insurance companies. For taxable years beginning before 
January 1, 1970, a voluntary unincorporated association of employees, 
including an association fulfilling the requirements of section 
801(b)(2)(B) (as in effect for such years), formed for the purpose of 
relieving sick and aged members and the dependents of deceased members, 
is an insurance company, whether the fund for such purpose is created 
wholly by membership dues or partly by contributions from the employer. 
A corporation which merely sets aside a fund for the insurance of its 
employees is not an insurance company, and the income from such fund 
shall be included in the return of the corporation.
    (b) Life insurance company. (1) The term life insurance company, as 
used in subtitle A of the Code, is defined in section 801(a). For the 
purpose of determining whether a company is a ``life insurance company'' 
within the meaning of that term as used in section 801(a), it must first 
be determined whether the company is taxable as an insurance company (as 
defined in paragraph (a) of this section). An insurance company shall be 
taxed as a life insurance company if it is engaged in the business of 
issuing life insurance and annuity contracts (either separately or 
combined with health and accident insurance), or noncancellable 
contracts of health and accident insurance, and its life insurance 
reserves (as defined in section 801(b) and Sec. 1.801-4), plus unearned 
premiums, and unpaid losses (whether or not ascertained), on 
noncancellable life, health, or accident policies not included in life 
insurance reserves, comprise more than 50 percent of its total reserves 
(as defined in section 801(c) and Sec. 1.801-5). For purposes of 
determining whether it satisfies the percentage requirements of the 
preceding sentence, a company shall first make any adjustments to life 
insurance reserves and total reserves required by section 806(a) 
(relating to adjustments for certain changes in reserves and assets) and 
then as required by section 801(d) (relating to adjustments in reserves 
for policy loans). For examples of the adjustments required under 
section 806(a), see paragraph (b)(4) of Sec. 1.806-3. For an example of 
the adjustments required under section 801(d), see paragraph (c) of 
Sec. 1.801-6. Furthermore, if an insurance company which computes its 
life insurance reserves on a preliminary term basis elects to revalue 
such reserves on a net level premium basis under section 818(c), such 
revalued basis shall be disregarded for purposes of section 801.
    (2) An insurance company writing only noncancellable life, health, 
or accident policies and having no ``life insurance reserves'' may 
qualify as a life insurance company if its unearned premiums, and unpaid 
losses (whether or not ascertained), on such policies comprise more than 
50 percent of its total reserves.
    (3) Section 801(f) provides that a burial or funeral benefit 
insurance company engaged directly in the manufacture of funeral 
supplies or the performance of funeral services shall not be taxable 
under section 802 but shall be taxable under section 821 or section 831 
as an insurance company other than life.
    (c) Noncancellable life, health, or accident insurance policy. The 
term noncancellable life, health, or accident insurance policy means a 
health and accident contract, or a health and accident contract combined 
with a life insurance or annuity contract, which the insurance company 
is under an obligation to renew or continue at a specified premium and 
with respect to which a reserve in addition to the unearned premiums (as 
defined in paragraph (e) of this section) must be carried to cover that 
obligation. Such a health and accident contract shall be considered 
noncancellable even though it states a termination date at a stipulated 
age, if, with respect to the health and accident contract, such age 
termination date is 60 or over. Such a contract, however, shall not be 
considered to be noncancellable after the age termination date 
stipulated in the contract has passed. However, if the age termination 
date stipulated in the contract occurs during the period covered by a 
premium received by the life insurance company prior to such date, and 
the company cannot cancel or modify the contract during such period, the 
age termination date shall be deemed to occur at the expiration of

[[Page 595]]

the period for which the premium has been received.
    (d) Guaranteed renewable life, health, and accident insurance 
policy. The term guaranteed renewable life, health, and accident 
insurance policy means a health and accident contract, or a health and 
accident contract combined with a life insurance or annuity contract, 
which is not cancellable by the company but under which the company 
reserves the right to adjust premium rates by classes in accordance with 
its experience under the type of policy involved, and with respect to 
which a reserve in addition to the unearned premiums (as defined in 
paragraph (e) of this section) must be carried to cover that obligation. 
Section 801(e) provides that such policies shall be treated in the same 
manner as noncancellable life, health, and accident insurance policies. 
For example, the age termination date requirements applicable to 
noncancellable health and accident insurance policies shall also apply 
to guaranteed renewable life, health, and accident insurance policies. 
See paragraph (c) of this section.
    (e) Unearned premiums. The term unearned premiums means those 
amounts which shall cover the cost of carrying the insurance risk for 
the period for which the premiums have been paid in advance. Such term 
includes all unearned premiums, whether or not required by law.
    (f) Life insurance reserves. For the definition of the term ``life 
insurance reserves'', see section 801(b) and Sec. 1.801-4.
    (g) Unpaid losses (whether or not ascertained). The term unpaid 
losses (whether or not ascertained) means a reasonable estimate of the 
amount of the losses (based upon the facts in each case and the 
company's experience with similar cases):
    (1) Reported and ascertained by the end of the taxable year but 
where the amount of the loss has not been paid by the end of the taxable 
year,
    (2) Reported by the end of the taxable year but where the amount 
thereof has not been either ascertained or paid by the end of the 
taxable year, or
    (3) Which have occurred by the end of the taxable year but which 
have not been reported or paid by the end of the taxable year.
    (h) Total reserves. For the definition of the term total reserves, 
see section 801(c) and Sec. 1.801-5.
    (i) Amount of reserves. For purposes of subsections (a), (b), and 
(c) of section 801 and this section, section 801(b)(5) provides that the 
amount of any reserve (or portion thereof) for any taxable year shall be 
the mean of such reserve (or portion thereof) at the beginning and end 
of the taxable year.

[T.D. 6513, 25 FR 12655, Dec. 10, 1960, as amended by T.D. 7172, 37 FR 
5619, Mar. 17, 1972]