IRS Weighs In On Death Benefit Guarantee Reserves

Section 807(d)(1) of the Internal Revenue Code states that the amount of life insurance reserves that an insurance company should use in reserve change calculations is either the contract’s net surrender value, if that figure is greater than the tax reserve, or the tax reserve, if the tax reserve is greater, officials write.

Under that section, the insurance company should use the end-of-year tax reserves for the VA contract in reserve change calculations, officials write.

In the situation involving the minimum death benefit, the insurance company must account for the excess of its obligations under the VA contract “with the minimum death benefit over its obligations under the contract without the death benefit as part of the company’s general account reserves,” officials write.

“The allocation of obligations between general account reserves and separate account reserves has no effect on the determination of the amount of [the insurance company's] life insurance reserves” for the VA contract under IRC Section 807(d), officials write.

A copy of the IRS revenue ruling is on the Web