There are certain terms and conditions that regulate relevant life insurance policies and they are collectively known as relevant life legislation. This policy is a single-life, death in service benefit policy designed to cover an employee by the employer and carries a whole lot of tax benefits for the employer.
Relevant Life Legislation: An Overview
Subsection 393B (4) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) delineates a ‘relevant life policy’ as:
- An exclusive group life policy as laid down u/s 480 of the Income Tax (Trading and Other Income) Act 2005
- A life insurance policy, the terms and conditions of which support the insured person’s beneficiaries through benefits in the event of his/her death, and with regard to which: (i) Clause A u/s 481 of the Act would be fulfilled if paragraph (a) in that clause denotes the death, in any situation or excluding particular situations, of that person (instead of the expiry in any situation of each of the persons who are covered with the plan) and if the clause did not incorporate paragraph (b), and ii) clauses C and D under that section and clauses A and C u/s 482 of the Act are fulfilled, or
- A life insurance policy that will fall inside the purview of paragraph (a) or (b) only because of the reality that it offers a payout which is an exempted payout under or on account of paragraph (a), (b) or (d) of subsection (3) of section 393B of the Income Tax (Earnings and Pensions) Act 2003.
Consequently, the criteria that have to be fulfilled if a policy is to be regarded a relevant life policy in the ‘single life’ class laid down in (b) are as follows:
Clause A u/s 481 of the Income Tax (Trading and Other Income) Act 2005 (‘ITTOIA’) – “under the terms of the policy a sum or other benefit of a capital nature is payable or arises on the death in any circumstances of [the individual] insured under the policy who dies under an age specified in the policy that does not exceed 75.”
Clause C u/s 481 – “the policy does not have, and is not capable of having, on any day:
(a) A surrender value that exceeds the proportion of the amount of premiums paid which, on a time apportionment, is referable to the unexpired paid-up period beginning with the day, or
(b) If there is no such period, any surrender value.”
Clause D u/s 481 – “no sums or other benefits may be paid or conferred under the policy, except as mentioned in condition A or C”.
Clause A u/s 482 of Income Tax (Trading and Other Income) Act – “any sums payable or other benefits arising under the policy must (whether directly or indirectly) be paid to or for, or conferred on, or applied at the direction of:
(a) An individual or charity beneficially entitled to them, or
(b) A trustee or other person acting in a fiduciary capacity who will secure that the sums or other benefits are paid to or for or conferred on, or applied in favour of, an individual or charity beneficially.”
Clause C u/s 482 – “a tax avoidance purpose is not the main purpose, or one of the main purposes, for which a person is at any time:
(a) The holder, or one of the holders, of the policy, or
(b) The person, or one of the persons, beneficially entitled under the policy.”