Friendly society tax exempt policies: qualifying policy rules: other conditions affecting premium payments
Regular premiums of equal or rateable amounts
A tax exempt policy will only qualify if premiums are payable at regular intervalsannually or more frequently throughout the premium paying term. There is a limitedexception where commutation or waiver of the premiums is allowed - see below.
Normally, where premium paying intervals are constant, the premiums payable must be ofequal amounts. No fluctuation of premiums is allowed. The exception is where premiums wereincreased to the new tax exempt limit by variation of the policy following increases inthe premium limits in 1991 and 1995 - see IPTM8445.
If, however, the premium paying intervals vary then the premiums payable must be ofrateable amounts, meaning that the amounts payable must be at a constant rateproportionate to the premium interval. For example, premiums of £20 per month equate to£240 per year. If the payment frequency is changed to quarterly then the amounts payablewould need to be £60 per quarter to maintain the constant annual rate.
However, in applying this test, any premium loading or discount introduced purely toreflect the change of payment frequency may be disregarded. For instance, a friendlysociety might impose a small loading where a policyholder switches from annual payment ina single sum to monthly payments.
Commutation of premiums
A policyholder is permitted to commute the premiums, that is, to pay a lump sum inplace of all remaining premiums, if
- the policy has run for at least half the term or ten years if that is earlier, or
- the person liable to pay the premiums emigrates from the UK or gives proof of intention to emigrate.
Waiver of premiums on disability
If premiums are waived in the case of a persons disability under the terms of thepolicy then that will not cause the policy to be disqualified, even though regularpremiums have ceased.
|Further reference and feedback||IPTM1013|