IPTM1115 - Fundamental concepts: what is a life policy?
According to the 1774 Life Assurance Act, a policy of life insurance is an insurance policy on life. There is no further definition in the Taxes Acts. If a policy pays benefits on the death of an individual, either whenever it happens, or within a specified term, then it is potentially within the scope of the chargeable event legislation.
It is not relevant for tax purposes that such a policy may also provide insurance against other risks, such as disability and critical illness, although that might affect its regulatory or accounting treatment.
Funeral plan contracts where a customer pays a sum to a funeral provider to provide a funeral in due course are not contracts of insurance, although similar arrangements if made with an insurer as a whole of life policy are, according to the regulatory rules ofthe Financial Services Authority (FSA).
The word policy in connection with insurance has a long history. It is the formal document in which an insurer (that is, insurance company or friendly society) sets out the terms of its obligations in consideration of the stipulated premiums. For an insurance contract to be made, or varied, between an insurer and policyholder requires the completion of the standard contract law offer and acceptance. There is no practical distinction between contract and policy; the latter simply evidences the former. Lord Donaldson confirmed thisin the judgment referred to at IPTM1110.
Qualifying and non-qualifying policies
Contracts made after 19 March 1968 needed to be "qualifying" to attract life assurance premium relief by deduction before its abolition for contracts made after 13 March 1984. The distinction is still of significance for contracts running off, and for the "chargeable events" regime.
Qualifying policies are less likely to give rise to a "chargeable event". The qualifying conditions in detail, and life assurance premium relief, are dealt with at IPTM2000 onwards. An outline of the chargeable events regime appears at IPTM1310. A detailed description is at IPTM3000 onwards.