I am a bit rusty on qualifying rules. I understand that if a policy is reinstated within 13 months of the premium not being paid then provided the client pays all the missing premiums the policy continues uninterrupted.
We have a plan where due to an error the client send in a cheque for the premiums Dec 20 to Nov 21 but it was not applied. This only came to light when the yearly premium for Dec 21 to Nov 22 was due. As it was our error we waived 4 months of premiums (Dec 20, Jan 21, Jan 22 and Feb 22) and the client paid the rest of the outstanding premiums. As 4 months of premiums were waived can I say that the plan was paid up to March 21 and as the client paid the remaining premiums by March 22 the policy was reinstated within 13 months? My concern is that the client didn’t pay all of the missing premiums.
Or do you think that I need to treat as a variation (outside 13 months) and retest.
Thanks for your help.
I am not sure that this particular forum is the right one to address issues such as this, but I will share my thought on the situation as it appears to me
I take it that the plan includes a policy of assurance. In which case who are you – the policy provider, agent for the policy provider, or agent for the plan/policy holder?
If the provider, I would have thought that you would be obliged to reinstate the policy as the error was yours in not applying the premiums paid to you in good faith.
If acting as agent for either the policy provider or the assured, the situation would be less clear although, if the former it would be mighty harsh on the assured if the plan is not reinstated as though it had continued uninterrupted. In that circumstance, I would expect there to be some adjustment between you and your principal - the policy provider.
However, surely the answer surely lies in the terms and conditions of the policy provider as they relate to the plan in question.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I agree with Paul Saunders - the policy provider has correctly reinstated the policy.
It has been many years since I looked at this type of issue but I don’t think that the reinstated policy automatically retains its 'qualifying policy status. The ‘problem’ is that the policy hasn’t paid all the outstanding premiums.
This is covered in Insurance Policyholder Taxation Manual at IPTM 8065 which provides;
Where a policy (including a Friendly Society tax exempt policy) lapses or is converted to paid-up within 12 months of the first unpaid premium, Paragraph 20ZA of Schedule 15 ICTA 1988 allows the policy to be reinstated as a qualifying policy on the same terms provided
- reinstatement is within 13 months of the due date of the first unpaid premium, and
- the policyholder pays all the missing premiums before reinstatement, including any arrears of premiums being paid in instalments.
Then the policy will be treated as if it has run without any interruption. The insurer may charge a fee for reinstatement or interest on the unpaid premiums without upsetting this treatment. But the insurer cannot, for instance, impose a premium loading following further underwriting.
This approach only applies where the policy lapses or is made paid-up under the terms of the policy through a non-forfeiture clause. It does not extend to policies made paid-up by agreement or under exercise of an option in the policy. Nor will it be extended beyond the end of the 13th month under any circumstances.
The reinstated policy needs to be tested against the ‘qualifying policy’ criteria so all is not lost.
Thanks Paul and Gerry,
Sorry for a question not on trusts but thank you for your replies. Yes I work for the provider and having retested the policy thankfully it remains qualifying.