IPTM7030 - Exceptions: group life policies: conditions about permitted benefits: ITTOIA05/S481

Limitation of benefits may be permitted

(ITTOIA05/S481(3)(b))

A limitation in the policy on the death benefits payable is permitted provided the limitation is the same in the case of any death. An example of this is where a policy has a free cover limit whereby any single payment of death benefits is limited to a specified sum in order to limit the insurer’s exposure and keep the premium to an acceptable figure. This might be necessary where, for instance, the general method of calculating death benefits would otherwise give a very high death benefit in the event of the death of a very highly paid individual, such as the managing director, who is covered under the policy.

Another example might be where the general method of calculating benefits includes a calculation of certain benefits based on dependants’ circumstances. Then the benefits are by definition limited where the deceased individual has no dependants. A similar example would be where certain benefits are limited to married individuals, based on a pre-determined formula which is the same for every married individual.

No surrender value is permitted

(ITTOIA05/S481(4)(a) and (b))

The policy must not have, or be capable of having, a surrender value other than an amount which equates to a proportion of unused premiums if the policy is cancelled. This means that policies with an investment element will not fall within the exclusion.

Sums or benefits permitted under the policy

(ITTOIA05/S481(5))

The only sums or benefits which may be paid under an excepted group life policy are death benefits or refunds of premiums for unexpired periods. The policy must not provide for payments on any other contingency such as on the disability of an insured individual.

Death benefits are sums of money or other benefits of a capital nature which are payable or arise on the death of an individual. These can include lump sum benefits representing the purchase price or capitalised value of a pension which is to be provided to the spouse or dependant of the deceased. However, a policy which provides for the direct payment of such a pension would not meet the conditions since the benefit being provided is income, not a benefit of a capital nature.

If, as a matter of fact, the policy provides for a capital sum payable on death by a series of capital instalments then that is permitted. However, provision of an income stream is not.