IPTM7015 - Scope: group life policies: what constitutes a group life policy?

Group life policies are typically used to provide death cover for groups of individuals ranging from couples and families through to trade union members, groups of employees and large professional partnerships. They are not normally used to provide investment returns. Whether a policy which covers more than one life is a group policy or really a series of individual policies is a contractual question and a number of factors need to be considered to determine the position. However, given the exclusion from the chargeable event rules of a wide category of protection-only group life policies this question is less important than it was.

Is the policy a group policy or a series of individual policies?

In 1992, the Association of British Insurers issued guidance to members on this question, following advice from the Inland Revenue and this paragraph repeats that guidance. Any interconnection between insurances would probably indicate a single group policy contract rather than a series of individual contracts. Specific factors which would indicate that a policy is not a group policy are where:

• there was individual rating of risk such that there was no cross-subsidy between scheme members. The application of free cover limits does not necessarily imply that rating is on anything other than an individual basis provided similar non-medical limits are applied generally. This would mean that individuals are able to secure insurances of the same type by reference to the same non-medical limits. By contrast, if a particular master/subordinate group policy is written by reference to non-medical limits which are generally not available, such as better non-medical limits, that is indicative of some interdependence between the policies and suggests a single contract
• the insurance is of a type which might be effected by an individual independently of any group arrangement
• membership of the scheme is not compulsory. Membership should also be open to all within the relevant class or category. In the case of schemes for employees, it is clearer if membership is open to all within the relevant class or category. In the case of schemes for employees, it is clearer if membership is open to all employees, although it is probably possible to make a case for membership being open to a particular class or category of employee
• the insured benefits are independent of benefits under any other contract
• the terms of the contract or options under the contract can be exercised independently of the terms of any other contract. It must be possible to terminate some contracts without having any effect or bearing on other contracts. In the extreme, termination of all but one contract should have no effect on the ability to continue the one remaining insurance without any implications for premium rates, benefits, options and the like
• the member pays the premiums under the contract or is chargeable to tax on the premiums paid
• dependants of the member and the like are entitled to receipt of the benefits for which insurance is provided for the member.