243 / Is supplemental life insurance coverage treated as group term life insurance?
Supplemental group term life insurance paid for entirely by employees was not considered group term life insurance under IRC Section 79 where the supplemental policy and the basic group term life insurance paid for by the employer were not considered the same policy because they were provided by unrelated insurers.1
Where employee-paid supplemental group term life insurance was purchased from the same insurer providing basic employer-paid group term life insurance, the supplemental and basic coverages were treated as one policy under IRC Section 79. Because premiums were allocated properly, the employer could elect to treat the coverage as three separate policies (basic coverage, supplemental smoker coverage, and supplemental nonsmoker coverage) for purposes of deciding whether the policies were carried directly or indirectly by the employer. Thus, the employees had no imputed income from the supplemental coverage.2
In another private ruling, supplemental life insurance coverage offered by a VEBA was considered part of an employer’s policy issued by the same insurer, but the employer could elect to treat it as a separate policy because there were no permanent benefits and the premiums were properly allocated between the VEBA’s supplementary coverage and the employer’s coverage. The coverage under the VEBA’s policy was not provided directly or indirectly by the employer because the employer was not paying any part of the coverage and because all rates charged the participants were less than the Table I rates.3