Practical Considerations

The Proposal Form

The starting-point for a life insurance contract is a proposal form. The policy itself is the expression of a contract between the purchaser of the policy and the company. This contract is based on the information given in the proposal form, and if this information is later proved to be false the company will be within its legal rights in repudiating the contract or reducing the benefits payable. It is important, therefore, to answer all questions on the proposal form as accurately as possible.


To help make our office more efficient and a more pleasant place to work, we recently hired a specialist office fit out and refurbishment company to redesign our office. This has made a vast improvement to the way we work, has boosted the morale of our staff, and has dramatically improved the appearance of our office. Click to find out about their services here and see if they could help make a dramatic difference to where you work.

Apart from annuities, where quotations are based on age attained, most life insurance policies are issued on the basis of age next birthday. In other words, the premium rate applicable to the life assured is that shown in the tables for the age at his or her next birthday. (Exceptions may be made if the last birthday is very recent. In this case, the policy may be "backdated" by the payment of a premium for the year just past, and the premium rate will then be that applicable to the age at this last birthday.) A false statement of age upsets the company's carefully calculated estimates of mortality and claims. If age is understated, it means the company is getting less in premiums than it needs to build up reserves for future claims. An incorrect statement of age on a proposal form will often come to light when a claim is made, for some companies require proof of age at this time. This is more likely to be the case where there is a death claim and the age on the death certificate does not match that in the policy. If age has been understated, the benefits will normally be scaled down.

Life insurance policies fall outside those provisions of the Unfair Contract Terms Act 2013 which relate to "avoidance of liability". However, the life offices have come to an agreement with the Department of Trade that they will include in their proposal forms a warning of the consequences of non-disclosure. As already noted, if material facts (normally health or occupational risk) are not disclosed, the office will be within its rights in refusing to meet a claim or in reducing the benefits payable.

Any attempt by the proposer to withhold information required in response to questions on medical or other matters (e.g. occupation, pastimes etc.) can also lead to repudiation of the contract by the company. This applies particularly to the request for information about any serious illnesses and about disease or illness affecting other members of the family. Proposal forms are often filled in by an agent or broker on the proposer's behalf, and there is sometimes a tendency to skate through these questions at high speed. It is better to take your time and be sure that the answers are full and accurate.

Interested in Practical Considerations?

Tax and Annuities

Annuities are deemed to consist of elements of both interest and capital. The amount of tax-free capital in each annual payment (which is not liable to tax) was fixed in 1996 at a rate depending on age and sex. The taxable content of an immediate annuity is easily deduced from Table 20.

Table 20 Capital element of an immediate annuity with purchase price of £111 ,000.

Age last birthday Male Female

£1 £1

45 33.00 29.00

50 38.64 33.36

55 46.09 39.06

60 56.27 46.74

65 ... see: Tax and Annuities

Of interest