Hi, I was just reading the notes about taxation and was struggling to understand the reasoning behind one of the rules for a contract to be qualifying: - Sum assured at least 75% of total premiums paid I don't see how this is reasonable. Surely if someone was to receive less then it shouldn't be taxed because they've made such a huge loss! Can anyone explain the logic behind this please? Thanks
Hi Note that the precise wording used in the course notes is not "of total premiums paid" but "of total premiums payable if the contract stayed in force for its full term". Hence if the individual died in the first three-quarters of the term, they would receive more than the premiums that they had paid in. The example is for with-profits and unit-linked endowment assurances. It is therefore also worth bearing in mind that the benefits payable under the with-profits version would not be just the sum assured on its own, but would also include regular and terminal bonuses. For the unit-linked product, the amount payable at maturity (or earlier surrender) would be linked to the unit fund value, and so would normally be expected to exceed the total premiums paid to date.
