Policy review clauses: general principles
Review clauses in a policy are a common area of difficulty in relation to the qualifying policy rules on significant variations and options.
A policy review clause is any term of the policy that allows an insurer to review a particular aspect of it, and provides for some action to be taken depending on the outcome of the review. A policy review clause may specify when the reviews are to occur or it may be flexible, allowing for reviews when the insurer thinks necessary.
A common example is a premium review clause in a mortgage endowment policy. Under such a clause, the insurer reviews the level of premiums to see whether they are likely to provide a sum on maturity that is sufficient to repay the mortgage and either gives the policyholder the option to increase premiums or requires them to do so. A less common example is where the term of the policy is reviewed to see if it should be extended.
Policy review clauses may be either advisory, where a policyholder has the choice whether to follow the advice or mandatory, where the policyholder must accept under the terms of the policy the change indicated by the review. The position under the qualifying policy rules will depend on the actions that follow the outcome of the reviews.
Advisory review clauses
An advisory review clause is one where if the review shows that a particular action is advisable, for instance increasing the premiums, the policyholder can choose whether to follow the advice. Therefore, an advisory review clause will contain an option. As with options in policies generally, the possible outcomes of such reviews will have been considered at the outset when determining whether a policy made on or after 1 April 1976 can be certified as qualifying.