Someone asked, "Can I self insure the group life insurance for my small (400 employees) employer?"
I answered, "See private letter ruling 199921036 (Its url is www.irs.treas.gov/pub/irs-wd/9921036.pdf . ) A self insured death benefit is life insurance for federal tax purposes.
Given your current number of lives insured, however, it makes little sense to self insure. Life insurance companies have no idea about who will die when, but, by using data about large numbers of people, actuaries can predict with reasonable accuracy how many people in a given population are likely to die during a certain period of time. Thus, the law of large numbers aids life insurers in determining adequate premium charges to ensure they can maintain financial strength while paying out claims."