Opinion ID: 316607
Heading Depth: 1
Heading Rank: 2

Heading: Reserve for Unearned Premiums

Text: 12 Great Commonwealth next argues that, if required to accrue the gross deferred and uncollected premiums, it should be allowed to set up a reserve for unearned premiums under 801(c)(2) in the amount of that portion of the loading attributable to life insurance coverage to be provided in the succeeding taxable year. This would generate a deduction for increases in reserves under 809(d)(2). 13 There is considerable doubt, however, whether the term 'unearned premiums' has any application to premiums on life insurance policies at all. It appears that the term has consistently been confined to the casualty insurance field. Alinco Life Insurance Co. v. United States, 1967, 373 F.2d 336, 178 Ct.Cl. 813; Travelers Equitable Insurance Co., 1931, 22 B.T.A. 784. Moreover, loading is not a proper item for inclusion in an insurance reserve at all. Treasury Regulation 1.801-3(e) defines 'unearned premiums' as 'those amounts which shall cover the cost of carrying the insurance risk for the period for which the premiums have been paid in advance.' The loading portion of deferred and uncollected premiums for insurance coverage provided in the succeeding taxable year fails to meet this definition in two respects. First, by definition, loading covers expenses and other items apart from the cost of carrying the insurance risk. The net valuation premium covers the cost of carrying that risk. Second, far from being paid in advance, deferred and uncollected premiums have not been paid at all. The district court was correct in refusing to allow a deduction for additions to reserves for unearned premiums.