C5.1 Taxation Treatment of Life Policies

Tax treatment is determined by...

Qualifying status.

Many providers withdrew from the regular premium qualifying policy market because...

Of the annual premium limit of £3,600.

For temporary insurance exceeding 10 years to be qualifying, it must...

• pay capital sum on death or earlier disability.

• pay premiums at least annually

• pay premiums for 10 years or ¾ term if less

• ensure total premiums in a year don’t exceed double in any other year or 1/8 whole term

• ensure sum on death is not less than 75% premiums paid to age 75

For temporary insurance less than 10 years to be qualifying, it must

• pay capital sum on death or earlier disability

• ensure surrender value doesn’t exceed premiums paid

• have a term no less than one year

Whole of life policies must...

• pay capital sum on death or earlier disability

• pay premiums at least annually

• ensure total premiums in a year don’t exceed double in any other year or 1/8 whole term

• ensure sum on death is not less than 75% premiums paid to age 75

Endowment policies must...

• pay capital sum at end of term or on death or earlier disability

• pay premiums at least annually

• have a term of at least 10 years

• ensure total premiums in a year don’t exceed double in any other year or 1/8 whole term

• ensure sum on death is not less than 75% premiums paid to age 75 (reduced if over 55 at outset)

For joint life policies to be qualifying, the 75th birthday applies to...

• joint life first death - older life

• joint life second death - younger life

Contingent policies only pay out if...

The life assured dies and the counter-life lives (treated same way as non-contingent)

Family income policies are included within the rules for...

Temporary insurances.

For children’s policies, life cover is ...

Deferred to age 16 - benefit cannot exceed premiums paid if death occurs in deferred period

For a friendly society policy to be qualifying…

• limit of £25 per month or £270 annually, which counts towards £3,600 allowance

• have a term of at least 10 years

• have a level premium

• have commutation allowed after half a term or 10 years if earlier, or if policyholder becomes non-resident

For term and whole of life friendly society policies to be qualifying...

The sum on death must be 75% of total premiums paid up to age 75.

For endowment friendly society policies to be qualifying...

The sum assured must be 75% of premiums payable, reduced if policy issued after 55.

Connected policies only qualify if...

Together they would form a single qualifying policy.

Extra premiums for qualifying purposes are…

Ignored.

If a policy has a change…

• Within 3 months of the change, date = date backdated to

• After 3 months, date = date on which contract completed so can’t retain old date

• If 1/8 rule broken, becomes non-qualifying

If a policy is reinstated...

• within 13 months, it is ignored for the qualifying rules

• outside 13 months, qualifying period restarts

Conversion is treated as...

A significant variation, so qualifying period restarts

A change of life assured is treated as...

A fundamental change creating a new contract from the date of change, so may become non-qualifying if not enough years left to run.

An offshore policy…

Cannot be certified so non-qualifying.