(a) In general. Section 801(d) provides that for purposes only of determining whether or not an insurance company is a life insurance company (as defined in section 801(a) and paragraph (b) of § 1.801-3), the life insurance reserves (as defined in section 801(b) and § 1.801-4), and the total reserves (as defined in section 801(c) and paragraph (a) of § 1.801-5), shall each be reduced by an amount equal to the mean of the aggregates, at the beginning and end of the taxable year, of the policy loans outstanding with respect to contracts for which life insurance reserves are maintained. Such reduction shall be made after any adjustments required under section 806(a) and § 1.806-3 have been made.

(b) Policy loans defined. The term policy loans includes loans made by the insurance company, by whatever name called, for which the reserve on a contract is the collateral.

(c) Illustration of principles. The provisions of section 801(d) and this section may be illustrated by the following example:

Example.The books of T, an insurance company, selling only life insurance and cancellable accident and health insurance, reflect (after adjustment under section 806 (a)) the following facts for the taxable year 1958:

	Jan. 1	Dec. 31	Mean of year	1. Life insurance reserves	$1,000	$2,000	$1,500	2. Policy loans	50	850	450	3. Life insurance reserves less policy loans			1,050	4. Unearned premiums, and unpaid losses (whether or not ascertained), on cancellable accident and health insurance	900	1,600	1,250	5. Total reserves adjusted for policy loans (item 3 plus item 4)			2,300

As the rules provided by section 801 (a) and (d) require that the figure in item 3 ($1,050) be more than 50 percent of the mean of the year figure in item 5 ($2,300) for an insurance company to qualify as a life insurance company, T would not qualify as a life insurance company for the taxable year 1958. [T.D. 6513, 25 FR 12657, Dec. 10, 1960]