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HMRC internal manual

Insurance Policyholder Taxation Manual

Significant variations: examples

Examples of changes to a policy that are significant variations falling short of a reconstruction are

  • an extension or shortening of the term or premium spreading term
  • an increase or decrease in the premium
  • an increase or decrease in the amount of death benefit assured
  • the addition or removal of critical illnesses from the list of illnesses covered under the policy where the insured person is charged in any way for that benefit: but note that

    • if there is no charge for the benefit then the change is an insignificant variation, see IPTM8160 
    • the addition of critical illness cover to a policy that did not have it before or the complete removal of critical illness cover is a fundamental reconstruction, see IPTM8110 
  • the addition, removal or significant alteration of an extra benefit for death by accident or of any other permitted benefit
  • the addition or removal of a waiver of premium condition
  • permitting the policyholder to take a premium holiday
  • permitting the policyholder to make a part surrender of rights under the policy
  • the addition or removal of an option to the policy, the exercise of which would itself be a significant variation in the terms of the policy.

A change in the way the benefits secured under the policy are determined, as for example between with-profits, without profits and unit-linked (or ‘investment linked’) was a significant variation before 7 October 2005. However, since that date, such a change is no longer treated as a significant variation - see IPTM8155.

Note that switches between different unit-linked funds are regarded in any event as insignificant variations - see IPTM8160. IPTM1400 and IPTM1410 explain what is meant by ‘unit-linked’, ‘with-profits’ and ‘without-profits’ policies.

Further reference and feedback IPTM1013