Types of policy
A cluster policy exists where the sum invested by a customer is divided up equally between a number of identical life insurance policies. These will be separate policies provided that the policies are genuinely distinct and self-contained and the documentation supports this. There can be one policy document for all the clustered policies but it should be clear that the policies are separate and each policy must be uniquely designated by appropriate sub-numbering. Ideally, each policy will have a separate policy schedule showing the details of that policy but a composite schedule may be accepted as evidence of a cluster policy provided it is clear that it relates to separate policies. See IPTM7330.
Where two or more policies are issued at the same time, the policy whose unique identifier is lower in either number or letter will be treated as issued first.
If a cluster policy has no identifier (i.e. it is not genuinely distinct and self-contained) from the remainder of the policies in the cluster, and the annual premium limit is exceeded in respect of the cluster as a whole, then the entire cluster will be treated as non-qualifying. If the cluster policies have unique identifiers then the annual premium limit being exceeded by one may not affect the whole cluster.
George takes out a cluster policy containing 4 policies on 1 May 2013. He has no other policies that count towards his annual premium limit. Premiums payable into each cluster policy are £1,000 in any 12 month period. Each policy would be treated as follows:
POLICY0001 - Qualifying
POLICY0002 - Qualifying
POLICY0003 - Qualifying
POLICY0004 - Non-qualifying
The last policy is non-qualifying because total premiums payable including this policy are £4,000. However, premiums payable under the first three policies are below the annual premium limit and as such these policies will be qualifying policies. The annual premium limit is exceeded by one policy, but this does not affect the status of the other policies that form part of the cluster.