Minimum capital sum assured on death: exceptions to the general rule
Life assured aged over 55 at the outset of the policy
Where an individual whose life is assured under an endowment policy - see IPTM8040 - is over 55 years old when the policy is taken out, the minimum sum assured is reduced by 2% for each full year that the individual is aged over 55. This rule applies to policies made after 1 April 1976. This test applies by reference to the age attained by the individual, not the individual’s age at next birthday.
So, for instance, if the life assured is 58 years old when the policy is taken out, then the minimum sum assured is reduced by 6% (that is 3 x 2%) to 69% of the total premiums payable.
For joint life policies, this age test applies to the eldest life assured where the sum is paid on the first death and to the youngest life assured where the sum is paid on the last death.
Reduction for exceptional risk of mortality
Where the policy provides that a debt is chargeable against the capital sum because of an exceptional risk of mortality then that is effectively a reduction in the capital sum assured. This reduction is disregarded in applying the 75% test. The disregard only applies where the reduction is expressed as a debt against the normal capital sum assured. It does not apply if the policy merely shows a reduced sum assured.
There is more on what is meant by ’exceptional risk of mortality’ in IPTM8075.
Whole of life policies
The 75% test must be applied to whole of life policies by reference only to the total premiums payable under the policy before the 75th birthday of the life assured.
Whole of life policies made before 1 April 1976 do not have to meet the 75% test, unless they are varied after that date.
Term assurance policies
The 75% test does not apply to term assurance policies unless the policy has a surrender value or the term ends after the 75th birthday of the life assured. There is more on term assurance policies as qualifying policies in IPTM8040.
Policy insuring the life of a minor
Where a policy on an insured child does not provide for the payment of a capital sum before the child reaches a specified age not exceeding 16, the amount that may be paid, including interest, in the event of the child dying before that age is limited to the total premiums paid.
Further reference and feedback IPTM1013