IPTM7035 - Exceptions: group life policies: conditions about nature of persons intended to benefit: ITTOIA05/S482

In order to qualify to be an excepted group life policy, there are also rules restricting who may receive the death benefits payable under the policy. In general, the exception from the chargeable event rules only applies to policies where the beneficiaries on death are the families, dependants or nominated charities of the deceased. This can be directly, or indirectly by way of a trust, as is common with group policies set up to provide death benefits to the dependants of the deceased.

Beneficiaries of the death benefits are restricted to individuals and charities

(ITTOIA05/S482(2)

The beneficial recipients of any death benefits paid under the policy must be individuals or charities. Charities are included to allow for the case where an individual might nominate all or part of the death benefit to be paid to a charity in the event of that individual’s death. This is subject to the ’group membership right condition’ described in the next section.

Thus, for instance, a policy held by a company on the lives of its employees where the company is the beneficiary of the death benefits would not meet this condition. Similarly, a loan protection collective life policy where the lending company has first call on the death benefit to pay off an outstanding loan also would not qualify.

Death benefits may be paid to the personal representatives of the estate of the deceased without causing this condition to be failed.

‘Group membership right condition’

(ITTOIA05/S482(3) and (4))

No individual whose life is insured under the policy, or any individual connected with such an individual, may directly or indirectly receive death benefits on the death of another insured person merely because he or she is also one of the persons insured under the policy, that is, is a member of the insured group.

So, for instance, business-cover type policies which pay benefits to other partners of a partnership or shareholders of a company to enable them to buy out the share of the business owned by the deceased partner or shareholder are not excepted group life policies.

If the insured person receives a death benefit other than by virtue of being a member of the group, for instance because they are the spouse of an insured person who has died, this would not in itself cause the policy to fail this condition.