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HMRC internal manual

Insurance Policyholder Taxation Manual

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HM Revenue & Customs
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Contingent events: death, disability and maturity

A qualifying policy must be a life insurance policy insuring the life of at least oneindividual. It may also insure against disability. Some policies, referred to as‘endowment policies’, may also have a maturity date on which benefits may bepaid, provided the policy has not come to an end on death. More details on endowmentpolicies at IPTM2040.

It is a condition of a qualifying policy that payment on the contingent event must end thepolicy. A group life policy, see IPTM1125, cannot be qualifyingfor this reason.

Death

Where there is more than one life insured, the death benefits will be paid inaccordance with the terms of the policy. For instance, on a policy insuring joint lives,the contingent event would normally be on the death of the first of those individuals,although there is nothing to stop a policy being written on a last survivor basis.

Disability

Where the policy insures against disability, payments on the contingency must bring thepolicy to an end and there cannot be a payment on a subsequent death or maturity.

‘Disability’ is not defined in the legislation. It includes critical illness. Itwould be impractical to list here all the conditions that are within the meaning of‘disability’ but both commercial constraints and an ordinary reading of the wordwill mean that the contingent event cannot be trivial.

The Association of British Insurers has published a Statement of Best Practice on criticalillness cover, to which all its members are expected to subscribe. This provides anindication of what constitutes ‘critical illness’ and any of the conditionsreferred to in the Statement will be treated as a disability within the meaning of thequalifying policy rules. It includes terminal illness and total permanent disability byreference to the ‘Activities of Daily Living’ and ‘Functional AbilityTests’.

Combined policies

A ‘combined policy’, as the name suggests, combines various types of coverwithin the same policy. The most common combined policy is one which combines normal lifecover with critical illness cover as described above. Such policies fall within thegeneral qualifying policy rules.

There are other types of policy combination, for instance, life cover with family incomebenefit or mortgage protection cover that would not qualify under the general rules butwhich may be qualifying under special rules - see IPTM8080 and IPTM8085.

Further reference and feedback IPTM1013