Rev. Rul. 69-146

Advice has been requested whether an insurance contract, which otherwise meets the requirements of section 403(b) of the Internal Revenue Code of 1954, will be treated as an annuity contract if it provides term life insurance on the insured's spouse and children as well as on the life of the employee.

An organization exempt from Federal income tax under section 501(c)(3) of the Code purchased an insurance contract for one of its employees under an arrangement intended to meet the requirements of section 403(b).

The contract provides a monthly life income upon maturity of x dollars per month and a death benefit upon death of the employee equal to the greater of 100x dollars or the cash value of the contract. The contract also provides life insurance on the insured's wife and on the life of each child up to the age of 25.

Section 403(b) of the Code provides, if the conditions set forth therein are met, that amounts contributed by an employer for an annuity contract shall be excluded from the gross income of the employee to the extent that such amounts do not exceed the applicable exclusion allowance.

Section 1.403(b)-1(c)(3) of the regulations provides that an individual insurance contract or a group contract issued after December 31, 1962, that provides incidental life insurance protection may be purchased as an annuity contract within the meaning of section 403(b) of the Code.

Section 403(b) of the Code relates to the purchase of an annuity contract by an employer for an employee and does not apply to an annuity contract purchased for someone other than an employee.

Similarly, a contract that provides life insurance protection for someone other than an employee is not within the contemplation of section 403(b).

Accordingly, since the insurance contract in this case provides term life insurance on the insured's spouse and children as well as on the life of the employee-participant, it is not an annuity contract within the meaning of section 403(b) of the Code.