IPTM2050 | Qualifying policies and life assurance premium relief: mortgage endowments: premium reviews

Endowment policy premium reviews

Insurers generally insert review clauses into mortgage-linked endowments, typically at 5- yearly intervals, sometimes more frequently as the policy approaches maturity. The aim is to assess whether the policy is on track to pay off the loan. These review clauses may require additional premiums to be paid. Or, more commonly, offer the policyholder the choice of whether to increase the premiums, to bring the policy back on track, or not.

Mandatory increases

If the policyholder does not object to the increase, then the qualifying status of the policy is unaffected. An increase under a mandatory review clause will be restricted so as not to breach the premium spreading rule outlined at IPTM2020.This is merely an application of the policy terms.

If the policyholder objects to the increase, and the insurer accommodates the objection, then this would amount to a variation in the policy terms that may lead to loss of qualifying status, depending on other features such as the remaining term of the policy.

Where a mandatory increase is applied, no statement is required from the policyholder – see IPTM2090.

Optional increases

As with mandatory increases, the status of the policy will not be affected if the holder accepts the increase. It is possible for the optional increase to breach the premium spreading rules outlined at IPTM2020 without affecting qualifying policy status if the policy still has at least 10 years to run. This assumes that the terms of the policy at the outset meant the policy was qualifying having regard to the review option clause.

The exercise of an option in a policy to increase or decrease premiums payable or the premium term from 21 March 2012 may require the beneficiary or beneficiaries under the policy to submit a statement – see IPTM2090. The variation or exercise of an option under a protected policy – see IPTM2072 – that is a mortgage endowment policy may be ignored in determining whether the policy has become a restricted relief qualifying policy – see IPTM2080.

If the policyholder does not accept the increase, the qualifying status of the policy is not affected.

Review clause removed or added by agreement

This would amount to a significant variation of the policy. The rule at ICTA88/SCH15/PARA18 would treat the varied policy as a new policy, applying the rules at ICTA88/SCH15/PARA17. See IPTM8165.