IPTM8155 - Significant variation: certain variations not treated as significant: ICTA88/SCH15/PARA18

There are some circumstances where a significant variation is disregarded for the purposes of the qualifying policy rules either by statute or by concession.

Changes in the way benefits secured under a policy are determined

ICTA88/SCH15/PARA18(3)(d), with effect from 7 October 2005 onwards, provides that a change in the method for calculating the benefits under the policy, whilst still a variation in contract law, will be disregarded for the purposes of the qualifying policy rules. This encompasses, for instance, a change from with-profits to non-profit unit linked, which would otherwise be treated on first principles as a significant variation, as described in the penultimate paragraph of IPTM8150.

This will mean that changes of this kind can be made with no consequences for the qualifying status of the policies.

However, the legislation does not extend, for instance, to changes in the premiums payable or the sum assured, as these are not changes to the method for calculating benefits.

Variations connected with an exceptional risk of death or disability

Certain variations of a policy are not treated as a variation for the purpose of the qualifying policy rules when there is an exceptional risk of death or disability - see IPTM8075 - even if they are significant (ICTA88/SCH15/PARA18(d)).

These are where

  • a premium loading for the exceptional risk is added or removed from the policy (although this will require consideration of the annual premium limit for variations which increase the premiums payable from 21 March 2012)
  • a provision is added, removed or altered because of an exceptional risk giving rise to a sum chargeable as a debt against the capital sum guaranteed by the policy on death or disability.

Reduction of level of premiums in the first year - Extra Statutory Concession A41

A reduction in the level of premiums in the first year will not be regarded as a significant variation, provided that the reduction leads to an appropriate reduction in the sum assured and the excess of the premium is either:

  • used to pay further premiums within the first year of the policy
  • returned to the policyholder, or
  • retained by the insurer, with no value being credited to the policyholder.