IPTM1115 - Fundamental concepts: what is a life policy?

According to the 1774 Life Assurance Act, a policy of life insurance is an insurancepolicy on life. There is no further definition in the Taxes Acts. If a policy paysbenefits on the death of an individual, either whenever it happens, or within a specifiedterm, then it is potentially within the scope of the chargeable event legislation.

It is not relevant for tax purposes that such a policy may also provide insurance againstother risks, such as disability and critical illness, although that might affect itsregulatory or accounting treatment.

Funeral plan contracts where a customer pays a sum to a funeral provider to provide afuneral in due course are not contracts of insurance, although similar arrangements ifmade with an insurer as a whole of life policy are, according to the regulatory rules ofthe Financial Services Authority (FSA).

The word policy in connection with insurance has a long history. It is the formal documentin which an insurer (that is, insurance company or friendly society) sets out the terms ofits obligations in consideration of the stipulated premiums. For an insurance contract tobe made, or varied, between an insurer and policyholder requires the completion of thestandard contract law offer and acceptance. There is no practical distinction betweencontract and policy; the latter simply evidences the former. Lord Donaldson confirmed thisin the judgment referred to at IPTM1110.

Qualifying and non-qualifying policies

Contracts made after 19 March 1968 needed to be ‘qualifying’ to attract lifeassurance premium relief by deduction before its abolition for contracts made after 13March 1984. The distinction is still of significance for contracts running off, and forthe ‘chargeable events’ regime.

Qualifying policies are less likely to give rise to a ‘chargeable event’. Thequalifying conditions in detail, and life assurance premium relief, are dealt with at IPTM2000 onwards. An outline of the chargeable events regimeappears at IPTM1310. A detailed description is at IPTM3000 onwards.

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