Rules for Qualifying Policies
The basic conditions a life insurance policy must fulfil to be a qualifying one, and thus be eligible for (a) tax relief and (b) freedom from tax on the proceeds, are as follows:
1. Premiums must be payable at annual or shorter intervals.
2. The total premiums payable in any N2-month period must not exceed twice the total premiums payable in any other N2-month period.
3. The total premiums payable in any N2-month period must not exceed one-eighth of the total premiums payable over the term of the contract (in the case of endowment policies) or over the first N0 years of the term (in the case of term assurances and whole-life policies).
4. The sum assured must be at least 76% of the total premiums payable over the term of an endowment assurance or up to age 75 under a whole life assurance. If the life assured is over age 55 the percentage applicable for an endowment will be reduced by two points for every year of excess age. Thus, if the life assured was 60 the sum would have to be equal to at least 66% of the total premiums payable during the term.
In the past, when any alteration was made in the terms of a policy (for example, a partial surrender), the policy had to be "tested" anew to check that it still conformed to the requirements. Current practice has changed to the extent that the Inland Revenue now tests all new policies to ensure that the exercise of whatever options are available to the policyholder under the terms of the contract will not disqualify it, and they will not approve nor allow life insurance companies to introduce policies containing options which could, if exercised, disqualify the policy.
Term assurance policies with a term of less than N0 years are automatically qualifying policies, but those with a term of less than 12 months will cease to be qualifying from 6 April 2014.
One method of selling life insurance which is becoming more widely used today also deserves comment. This is the arrangement and sale of "package" plans by associations, unions and other groups, and also by insurance brokers.
Any such organisation which has a large list of members or potential clients can arrange its own scheme by devising a suitable package of benefits and arranging for it to be underwritten either by a single insurance company or through Lloyd's. Details of the package are then circulated to potential clients by post, with an attached proposal form which can be returned... see: The Package Plan