IPTM8020 | Permitted benefits under a qualifying policy

Capital sums payable on contingent events

The payment on a contingent event – death, disability or maturity – must be a capital sum and a qualifying policy may only pay a capital sum on one contingent event. The policy may provide for the capital sum to be paid in instalments but, if so, there must be a clear obligation to this effect. If not, and the instalments are regarded as income, the policy will not be a qualifying policy. There are conditions on the minimum sum assured on death - see IPTM8030- but not on sums payable on maturity or disability. The sum payable on death need not be the same as the sum payable on disability.

Other benefits permitted under a qualifying policy (ICTA88/SCH15/PARA1(7))

There are certain other benefits that are permitted under a qualifying policy, otherthan capital sums on contingent events. These are the

• right to participate in profits of the insurance company, which means that there may be annual or reversionary bonuses, governed by the insurer’s duty of fairness, and a terminal bonus at maturity

• right to surrender all or part of the rights under the policy for a payment – this will involve a potential variation of the policy and it will need to satisfy the tests for varied policies accordingly - see IPTM8165

• waiver of premiums because of a person’s disability

• option to receive payments by way of an annuity

• option to increase the sum assured in certain circumstances, for example, on marriage or birth of a child.

An increase in unit allocation on a unit-linked policy under its terms, for instance where the policyholder pays a higher level of premium which results in an increase in allocation rate, would be a permitted benefit with no bearing on the qualifying status. Where an uplift is not under the terms of the policy it is likely to be a significant variation with the consequences described at IPTM8165 onwards.