IPTM8015 - Contingent events: death, disability and maturity

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

It is a condition of a qualifying policy that payment on the contingent event must end the policy. A group life policy, defined at ITTOIA05/S480(2), cannot be qualifying for this reason, because a payment arising as a result of a single death does not bring the policy to an end.

Death

Where there is more than one life insured, the death benefits will be paid in accordance 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. Provided the payment on the contingent event ends the policy, it can be a qualifying policy.

Disability

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

‘Disability’ is not defined in the legislation. Therefore it takes its normal dictionary meaning. It includes critical illness. It would 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 word will mean that the contingent event cannot be trivial.

On 22 May 2018, the Association of British Insurers published a Guide to Minimum Standards for Critical Illness Cover. This provides an indication of what constitutes ‘critical illness’ and any of the conditions referred to in the Guide will be treated as a disability within the meaning of the qualifying policy rules.

Combined policies

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

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