Death Benefits Excluded

Death benefits, accidental death benefits, burial benefits, and death benefits payable from an employee welfare benefit plan to a retiree on a spouse's death constitute excludable insurance contract benefits according to the IRS’ PLR 200002030.

This determination was made when an issue involving an employee who received benefits under a collective bargaining agreement from an employer-established welfare benefit plan arose. The plan would pay the following benefits: an accidental death and dismemberment award, a death benefit, a burial benefit, and a death benefit payable to a covered retiree on the death of a spouse.

The IRS sought to define “life insurance contract” under Sec. 7702 in an effort to determine if the contracts would be handled as a life insurance contract. Because the Sec. 7702 definition of a life insurance contract did not apply, the IRS turned to Federal case law for clarification. Using Sec. 7702(a) and federal common law, the IRS ruled that the death benefits were paid under a life insurance contract. The death benefit contract satisfied the cash value accumulation test under Sec. 7702(a) since there was no cash surrender value to the benefits. Since the death benefits were received under a life insurance contract, they were excludable from income under Sec. 101(a).

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