(a) General rule.--
(1) Except as otherwise provided in subsection (b) or (c), a trustee shall allocate to principal the proceeds of a life insurance policy or other contract in which the trust or its trustee is named as beneficiary. This paragraph includes a contract which insures the trust or its trustee against loss for damage to, destruction of or loss of title to a trust asset.
(2) If the premiums on the policy or contract are paid from income, the trustee shall allocate to income dividends on the policy or contract.
(3) If the premiums on the policy or contract are paid from principal, the trustee shall allocate to principal dividends on the policy or contract.
(b) Allocation of proceeds to income.--Except as provided in subsection (c), a trustee shall allocate to income proceeds of a contract which insures the trustee against any of the following:
(1) Loss of occupancy or other use by an income beneficiary.
(2) Loss of income.
(3) Subject to section 8143 (relating to business and other activities conducted by trustee), loss of profits from a business.
(c) Application.--This section does not apply to a contract to which section 8149 (relating to retirement benefits, individual retirement accounts, deferred compensation, annuities and similar payments) applies.
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