IPTM8085 - Combined policies: tests of whether qualifying: ICTA88/SCH15/PARA9

Where a combined policy includes family income or mortgage protection cover it is treated as if it is made up of separate policies and qualifying policy tests applied to each deemed policy as described below. If both deemed policies pass the tests then the combined policy qualifies.

Combined policy providing family income cover

Where the policy combines the provision of a fixed capital sum on death with family income benefit, the premium is apportioned between two deemed policies, one providing the fixed sum and the other providing the family income benefit. The combined policy qualifies if each deemed policy qualifies.

Combined policy providing mortgage protection cover

Where the policy provides additional decreasing insurance, it is treated as if it comprises two separate policies:

• the first deemed policy providing throughout a fixed capital sum on death equal to the smallest amount provided under the overall policy and as if the premium payable is that needed to provide that smaller sum. For example, if the fixed capital sum decreased from £200,000 to £50,000 over the overall policy, the smallest amount, £50,000, would be the capital sum for the first deemed policy. The premiums payable for this first deemed policy would be the amounts necessary to provide the capital sum of £50,000.
• the second deemed policy where premiums payable are the balance of the premiums not taken into account in the first deemed policy and where the sum assured is the decreasing amount by which the actual sum assured exceeds the smallest sum assured secured by the overall policy. For example, as the overall policy continued, the overall premiums payable would decrease as the overall capital sum decreased from £200,000 to £50,000. The decreasing difference between the overall and first deemed policy premiums would be the premiums arising for the second deemed policy.

The first deemed policy must be tested to see if it would be a qualifying policy on its own terms.

The second deemed policy must be tested to see if it would qualify taking at any point in time during the life of the policy

• the amount of premium payable under the policy, and
• the amount of the sum assured

and treating them as the amounts that would apply over the life of the policy. The test of the second deemed policy reflects the fact that as the policy progresses, both premium payable and sum assured decrease. This test ensures they stay in balance.

If both deemed policies pass these qualifying tests then the combined policy qualifies.

Term assurance within a combined policy

Term assurance on its own does not have to satisfy the 75% test of the minimum sum assured unless it has a surrender value or insures a life past the 75th birthday - see IPTM8035. But if it is within a combined policy and that policy has a surrender value then, for the purposes of testing the combined policy, the term element must also be treated as having a surrender value, unless the policy conditions say otherwise. This means the term element must satisfy the 75% test.