IPTM8040 - Term and premium paying term: conditions

Endowment policies

An endowment policy has a maturity date specified in the terms of the policy.

Minimum term of ten years

To meet the qualifying policy rules the term of the policy must be at least ten years from the date on which the policy is made - see IPTM8045. So, the maturity date cannot be earlier than the anniversary of the commencement date at the beginning of what would be the first day of the 11th year. The premium paying term must also be at least ten years, that is, regular premiums must be payable, annually or at shorter intervals, for a minimum of ten years (ICTA88/SCH15/PARA2(1)).

Ten year endowment policy: payment of maturity proceeds

Insurers may wish to ensure that policyholders receive the maturity proceeds by cheque on the day their policy matures. In order to achieve this where the term of the policy is exactly ten years, an insurer would need to post the cheque a few days before the minimum term of ten years has elapsed. The policy will not be regarded as disqualified where the insurer posts the maturity cheque with the sole aim that it is delivered to the policyholder on the maturity date.

This is with the proviso that if the insured dies on or before the maturity date, any necessary adjustment will be made to reflect the fact that the policy came to an end on death, not on maturity, which may affect the benefits paid.

Whole of life policies

Where the term of a policy is to last throughout the whole of the life of the insured (a ‘whole of life policy’), premiums must be payable for at least ten years from its outset, unless the policy ends earlier through payment of benefits on death or disability. Premiums must be payable at least annually or more frequently at shorter regular intervals (ICTA88/SCH15/PARA1(2)).

Term assurance policies

A ‘term assurance policy’ is one where benefits are only paid if the death or disability covered occurs within a specified term. Under the qualifying policy rules, there may also be a surrender value but where the term of the policy is less than ten years, the surrender value must be limited to the value of premiums paid.

It is now rare for a term assurance policy to be written as a qualifying policy because life assurance premium relief is no longer available on the premiums and no chargeable event gains will arise unless the policy was acquired second hand.

The minimum term for a term assurance qualifying policy is one year. Where the term is less than ten years, there is no minimum premium paying term, so even a policy with just a single premium payable could qualify. Where the term is ten years or more, regular premiums must be paid for a minimum of ten years, or three quarters of the term if that is shorter than ten years.