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Employee. For this exclusion, treat the following individuals as employees.
· A current common-law employee.
· A full-time life insurance agent who is a current statutory employee.
· An individual who was formerly your employee under (1) or (2), above.
A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction and control.
Exception for S corporation shareholders. Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time during the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power.
The 10-employee rule. Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year.
For this rule, count employees who choose not to receive the insurance unless, to receive it, they must contribute to the cost of benefits other than the group-term life insurance. For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it.
Exceptions. Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance.
Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met.
· If evidence that the employee is insurable is required, it is limited to a medical questionnaire (completed by the employee) that does not require a physical.
· You provide the insurance to all your full-time employees or, if the insurer requires the evidence mentioned in (1), to all full-time employees who provide evidence the insurer accepts.
· You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. See Regulations section 1.79-1 for details.
Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met.
· You provide the insurance under a common plan covering your employees and the employees of at least one other employer who is not related to you.
· The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance.
· Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets.
