This is from AOPA.ORG:
"At the pilots' convention I mentioned earlier, there was an urban legend floating around that you needed a second class medical certificate to teach; some of the instructors there opined that you couldn't accept money for training without a second class medical. FAR 61.23(a)(3)(iv) tells us that a person must hold at least a third class medical certificate when exercising the privileges of a flight instructor certificate if the person is acting as the PIC or serving as a required pilot crew member. A second class medical isn't mentioned, nor is it noted in the eligibility requirements for flight instructors in FAR 61.183. There is no reference to the circumstances under which you cannot accept money for flight instruction.
This myth probably emerged from a seemingly logical thought process that starts with the requirement for a second class medical in order to be paid as a commercial pilot or ATP. Since you can't be a flight instructor without a commercial or ATP certificate, the reasoning goes, you can't accept money without a second class medical. The logic is sound, but it just isn't true. When you instruct, you aren't being paid as a pilot; you're being paid as a teacher.
I caution those who routinely apply for a second or even first class medical certificate when they don't require it. A friend of mine would always apply for a first class medical certificate although he only required a third class. He was a Rambo type who prided himself on his physical conditioning and relished a tofu and fruit diet. Once we went to the aviation medical examiner together for our physicals. He went for his traditional first class, and I opted for my normal third class, feeling lucky to get it. The AME discovered that my friend had a minor eye problem, and he was disqualified for a first class medical certificate. When you have a disqualifying condition, you are not just bumped down to the next lower class; you walk out of the doctor's office with no medical certificate at all. That day I got my third class, but my friend had no medical at all and had to reapply. The lesson learned here is not to apply for a class of certificate higher than you need. A third class is all that's required to be a flight instructor."
http://www.aopa.org/asf/publications...m?article=4674
Alan