IPTM7315 - Chargeable events: qualifying policies: variation or exercise of option which increases the premiums payable

Variations which increase the premiums payable

A variation occurs when the level of annual premium is increased, except where this relates solely to a change in payment frequency, for instance from annually to monthly. The test does not look at the total of premiums payable over the remaining term of the policy from the date of variation.

So, a variation to increase the annual premiums payable would be a variation that increases the premiums payable under the policy, even if it is accompanied by a reduction of the term such that the total of premiums payable over the balance of the term is reduced.

Examples of variations that are not regarded as increasing the premiums payable are:

  • a change in the premium payment frequency even if it is accompanied by a small premium increase to reflect this, for instance, if an annual premium of £1000 is changed to a monthly premium of £90
  • an increase in the term of the policy without changing the amount of each payment of premiums.

Additionally, any changes in premiums payable or the term of the policy may affect the qualifying status of the policy – see IPTM8000 onwards.

Option in the policy to increase premiums or extend the term

Where the total remaining premiums payable are increased pursuant to an option already present in the policy, certified in accordance with ICTA88/SCH15, then this is not a variation and the clock determining whether a policy is time-served is not reset on exercise of the option. But if a policy is varied to include an option which, if exercised, would increase the premiums payable, then the policy is regarded as varied on the date the option is exercised and the time-served clock will restart from that date.

The meaning of ‘increase the premiums payable’ is the same in this context as on a variation. So, for instance, where an option is added to a policy that allows for the extension of a premium paying term without increasing the level of annual premiums payable then the exercise of that option would not restart the time-served clock.