---
kind: "range"
citation: "26 C.F.R. §§ 1.801-3–1.801-6"
title: "26"
from: "1.801-3"
to: "1.801-6"
count: 4
url: "https://uscodex.org/cfr/26/1.801-3..1.801-6"
---

# §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)](/cfr/26/801.md?p=a) and [paragraph (b)](#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 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)](/cfr/26/801.md?p=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)](/cfr/26/801.md?p=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)](/cfr/26/801.md?p=a), it must first be determined whether the company is taxable as an insurance company (as defined in [paragraph (a)](#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)](/cfr/26/801.md?p=b) and [§ 1.801-4](/cfr/26/1.801-4.md)), 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)](/cfr/26/801.md?p=c) and [§ 1.801-5](/cfr/26/1.801-5.md)). 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)](/cfr/26/806.md?p=a) (relating to adjustments for certain changes in reserves and assets) and then as required by [section 801(d)](/cfr/26/801.md?p=d) (relating to adjustments in reserves for policy loans). For examples of the adjustments required under [section 806(a)](/cfr/26/806.md?p=a), see [paragraph (b)(4)](/cfr/26/1.806-3.md?p=b-4) of § 1.806-3. For an example of the adjustments required under [section 801(d)](/cfr/26/801.md?p=d), see [paragraph (c)](/cfr/26/1.801-6.md?p=c) of § 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)](/cfr/26/818.md?p=c), such revalued basis shall be disregarded for purposes of [section 801](/cfr/26/801.md).
  - (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)](/cfr/26/801.md?p=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](/cfr/26/802.md) but shall be taxable under [section 821](/cfr/26/821.md) or [section 831](/cfr/26/831.md) 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)](#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 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)](#e) of this section) must be carried to cover that obligation. [Section 801(e)](/cfr/26/801.md?p=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)](#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)](/cfr/26/801.md?p=b) and [§ 1.801-4](/cfr/26/1.801-4.md).
- (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)](/cfr/26/801.md?p=c) and [§ 1.801-5](/cfr/26/1.801-5.md).
- (i) **Amount of reserves.** For purposes of subsections (a), (b), and (c) of section 801 and this section, [section 801(b)(5)](/cfr/26/801.md?p=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.

# §1.801-4. Life insurance reserves.

- (a) **Life insurance reserves defined.** For purposes of part I, subchapter L, chapter 1 of the Code, the term life insurance reserves (as defined in [section 801(b)](/cfr/26/801.md?p=b)) means those amounts:
  - (1) Which are computed or estimated on the basis of recognized mortality or morbidity tables and assumed rates of interest;
  - (2) Which are set aside to mature or liquidate, either by payment or reinsurance, future unaccrued claims arising from life insurance, annuity, and noncancellable health and accident insurance contracts (including life insurance or annuity contracts combined with noncancellable health and accident insurance) involving, at the time with respect to which the reserve is computed, life, health, or accident contingencies; and
  - (3) Which, except as otherwise provided by [section 801(b)(2)](/cfr/26/801.md?p=b-2) and paragraphs [(b)](#b) and [(c)](#c) of this section, are required by law. For the meaning of the term “reserves required by law”, see [paragraph (b)](/cfr/26/1.801-5.md?p=b) of § 1.801-5.
- (b) **Certain reserves which need not be required by law.** [Section 801(b)(2)](/cfr/26/801.md?p=b-2) sets forth certain reserves which, though not required by law, may still qualify as life insurance reserves, provided, however, that they first satisfy the requirements of [section 801(b)(1)](/cfr/26/801.md?p=b-1) (A) and (B) and [paragraph (a)](#a) (1) and (2) of this section. Thus, reserves need not be required by law:
  - (1) In the case of policies covering life, health, and accident insurance combined in one policy issued on the weekly premium payment plan, continuing for life and not subject to cancellation, and
  - (2) For taxable years beginning before January 1, 1970, in the case of policies issued by an organization which met the requirements of [section 501(c)(9)](/cfr/26/501.md?p=c-9) (as it existed prior to amendment by the Tax Reform Act of 1969) other than the requirement of subparagraph (B) thereof.
- (c) **Assessment companies.** [Section 801(b)(3)](/cfr/26/801.md?p=b-3) provides that in the case of an assessment life insurance company or association, the term life insurance reserves includes:
  - (1) Sums actually deposited by such company or association with officers of a State or Territory pursuant to law as guaranty or reserve funds, and
  - (2) Any funds maintained, under the charter or articles of incorporation or association of such company or association (or bylaws approved by the State insurance commissioner) of such company or association, exclusively for the payment of claims arising under certificates of membership or policies issued upon the assessment plan and not subject to any other use.
- (d) **Reserves which qualify as life insurance reserves.** The following reserves, provided they meet the requirements of [section 801(b)](/cfr/26/801.md?p=b) and [paragraph (a)](#a) of this section, are illustrative of reserves which shall be included as life insurance reserves:
  - (1) **Reserves held under life insurance contracts.**
  - (2) Reserves held under annuity contracts (including reserves held under variable annuity contracts as described in [section 801(g)(1)](/cfr/26/801.md?p=g-1)).
  - (3) Reserves held under noncancellable health and accident insurance contracts (as defined in [paragraph (c)](/cfr/26/1.801-3.md?p=c) of § 1.801-3) and reserves held under guaranteed renewable health and accident insurance contracts (as defined in [paragraph (d)](/cfr/26/1.801-3.md?p=d) of § 1.801-3).
  - (4) Reserves held either separately or combined under contracts described in subparagraphs [(1)](#d-1), [(2)](#d-2), or [(3)](#d-3) of this paragraph.
  - (5) **Reserves held under deposit administration contracts.** Generally, the reserves held by a life insurance company on both the active and retired lives under deposit administration contracts will meet the requirements of [section 801(b)](/cfr/26/801.md?p=b) and [paragraph (a)](#a) of this section.
- (e) **Reserves and liabilities which do not qualify as life insurance reserves.** The following are illustrative of reserves and liabilities which do not meet the requirements of [section 801(b)](/cfr/26/801.md?p=b) and [paragraph (a)](#a) of this section and, accordingly, shall not be included as life insurance reserves:
  - (1) Liability for supplementary contracts not involving at the time with respect to which the liability is computed, life, health, or accident contingencies.
  - (2) In the case of cancellable health and accident policies and similar cancellable contracts, the unearned premiums and unpaid losses (whether or not ascertained).
  - (3) The unearned premiums, and unpaid losses (whether or not ascertained), on noncancellable life, health, or accident policies (and guaranteed renewable life, health, and accident policies) not included in life insurance reserves. (However, such amounts shall be taken into account under [section 801(a)(2)](/cfr/26/801.md?p=a-2) for purposes of determining whether an insurance company is a life insurance company.)
  - (4) The deficiency reserve (as defined in [section 801(b)(4)](/cfr/26/801.md?p=b-4)) for each individual contract, that is, that portion of the reserve for such contract equal to the amount (if any) by which:
    - (i) The present value of the future net premiums required for such contract, exceeds
    - (ii) **The present value of the future actual premiums and consideration charged for such contract.**
  - (5) Reserves required to be maintained to provide for the ordinary operating expenses of a business which must be currently paid by every company from its income if its business is to continue, such as taxes, salaries, and unpaid brokerage.
  - (6) **Liability for premiums received in advance.**
  - (7) **Liability for premium deposit funds.**
  - (8) **Liability for annual and deferred dividends declared or apportioned.**
  - (9) **Liability for dividends left on deposit at interest.**
  - (10) **Liability for accrued but unsettled policy claims whether known or unreported.**
  - (11) **A mandatory securities valuation reserve.**
- (f) **Adjustments to life insurance reserves.** In the event it is determined on the basis of the facts of a particular case that premiums deferred and uncollected and premiums due and unpaid are not properly accruable for the taxable year under [section 809](/cfr/26/809.md) and, accordingly, are not properly includible under assets (as defined in [section 805(b)(4)](/cfr/26/805.md?p=b-4)) for the taxable year, appropriate reduction shall be made in the life insurance reserves. This reduction shall be made when the insurance company has calculated life insurance reserves on the assumption that the premiums on all policies are paid annually or that all premiums due on or prior to the date of the annual statement have been paid.

# §1.801-5. Total reserves.

- (a) **Total reserves defined.** For purposes of [section 801(a)](/cfr/26/801.md?p=a) and [§ 1.801-3](/cfr/26/1.801-3.md), the term “total reserves” is defined in [section 801(c)](/cfr/26/801.md?p=c) as the sum of:
  - (1) Life insurance reserves (as defined in [section 801(b)](/cfr/26/801.md?p=b) and [§ 1.801-4](/cfr/26/1.801-4.md)),
  - (2) Unearned premiums (as defined in [paragraph (e)](/cfr/26/1.801-3.md?p=e) of § 1.801-3), and unpaid losses (whether or not ascertained) (as defined in [paragraph (g)](/cfr/26/1.801-3.md?p=g) of § 1.801-3), not included in life insurance reserves, and
  - (3) **All other insurance reserves required by law.**
- (b) **Reserves required by law defined.** For purposes of part I, subchapter L, chapter 1 of the Code, the term reserves required by law means reserves which are required either by express statutory provisions or by rules and regulations of the insurance department of a State, Territory, or the District of Columbia when promulgated in the exercise of a power conferred by statute, and which are reported in the annual statement of the company and accepted by state regulatory authorities as held for the fulfillment of the claims of policyholders or beneficiaries.
- (c) [Reserved]
- (d) **Illustration of principles.** The provisions of [section 801](/cfr/26/801.md) relating to the percentage requirements for qualification as a life insurance company may be illustrated by the following example:

# §1.801-6. Adjustments in reserves for policy loans.

- (a) **In general.** [Section 801(d)](/cfr/26/801.md?p=d) provides that for purposes only of determining whether or not an insurance company is a life insurance company (as defined in [section 801(a)](/cfr/26/801.md?p=a) and [paragraph (b)](/cfr/26/1.801-3.md?p=b) of § 1.801-3), the life insurance reserves (as defined in [section 801(b)](/cfr/26/801.md?p=b) and [§ 1.801-4](/cfr/26/1.801-4.md)), and the total reserves (as defined in [section 801(c)](/cfr/26/801.md?p=c) and [paragraph (a)](/cfr/26/1.801-5.md?p=a) of § 1.801-5), shall each be reduced by an amount equal to the mean of the aggregates, at the beginning and end of the taxable year, of the policy loans outstanding with respect to contracts for which life insurance reserves are maintained. Such reduction shall be made after any adjustments required under [section 806(a)](/cfr/26/806.md?p=a) and [§ 1.806-3](/cfr/26/1.806-3.md) have been made.
- (b) **Policy loans defined.** The term policy loans includes loans made by the insurance company, by whatever name called, for which the reserve on a contract is the collateral.
- (c) **Illustration of principles.** The provisions of [section 801(d)](/cfr/26/801.md?p=d) and this section may be illustrated by the following example: