IPTM8080 | Combined policies: family income cover and mortgage protection cover: ICTA88/SCH15/PARA9

There are certain combined policies that combine whole of life cover, term cover or an endowment with:

• family income cover, or

• mortgage protection cover.

Family income cover

Family income cover provides a series of capital sums on death, if the death occurs during a specified period. The sums payable are known as ‘family income benefit’. With the payments being a series of capital sums on death, such payments are not treated as income.

Mortgage protection cover

Mortgage protection cover provides decreasing insurance, where a capital sum is payable on death only within a specified period, and the amount of the capital sum payable decreases over that period. The amount of the outstanding mortgage loan reduces over time and the purpose of mortgage protection cover is to provide a benefit on death that meets the loan outstanding at date of death.

Can a combined policy that includes family income or mortgage protection cover qualify?

A combined policy must first be tested under the general qualifying policy rules. If it passes then it is qualifying. If it fails then it may still be qualifying under the rules in ICTA88/SCH15/PARA9.

Strictly, the rules in paragraph 9 only apply to:

• whole of life policies combined with family income benefit, and

• term or endowment policies combined with additional decreasing insurance.

In practice, the rules may be treated as applying to any combination of whole of life, endowment or term policies with family income benefit or additional decreasing insurance.

IPTM8085 describes the tests that must be applied to a combined policy under paragraph 9.