Aviva Relevant Life Insurance
Aviva has added an option to include critical illness benefits on its RLP (relevant life policy). Previously, RLPs have offered life cover only or (more recently) have included terminal illness cover too. Indeed, the general consensus was that that was all an RLP could include. However, Aviva has revisited the law around RLPs and come up with a different interpretation of Section 393B (3 and 4) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). The reasoning behind this reinterpretation is set out in useful detail on Aviva’s adviser website.
The CI benefit is essentially the same as on Aviva’s ‘life’ life plans but without children’s benefits.
The plan is available on the lives of employees aged between 18 and 64 for an RLP with CI cover. This compares to a maximum age of 73 for level life cover and 69 for increasing life cover. Premium rates can be guaranteed or reviewable. Cover must end by age 74 (or 70 if TPD – total permanent disability - is included). The maximum overall policy term is 50 years. The maximum sum insured allowed is £3m (or £2m if TPD is included). Policies must be written under Aviva’s Relevant Life Trust.
On the CI element, Aviva now covers over 40 conditions, of which 19 have an ABI+ definition. There are also 11 additional conditions that pay out the lower of £25,000 and 25% of the cover amount (or £20,000 or 20% for some additional conditions). Aviva also includes the Best Doctors service within the plan.
In addition to the new CI option within its RLP, Aviva has also introduced a raft of other changes as part of a wider business protection package.
Comment: Until now, RLPs have simply offered death in service type life cover benefits and, more recently, terminal illness cover too. That was widely thought to be the way things had to be.
However, Aviva has gone back to the relevant (see what we did there?) legislation – it was enacted as long ago as 2003 – and concluded that it is possible to offer more benefits, and that is what it has now introduced, as an option on its existing RLP.
Why did it take over a dozen years to do that? We don’t know! Whatever the reason, someone did decide to revisit the detail of what the legislation actually says and, though it is not always easy to follow legal arguments, Aviva’s explanation of its new interpretation looks to make sense. It also backed up its own thinking with external legal advice (we assume in the form of a counsel’s opinion). Such opinion does depend both on what counsel said and what it was asked but we have no reason to doubt Aviva would have asked the right questions of the right expert barrister.
But is it pukka? Tax avoidance is generally frowned on by the wider public these days (a big change from the 1970s when life insurers spent much of their time looking for and exploiting loopholes in that high tax era). That said, look at this from a public policy standpoint and a case can be made that the Government should both encourage buying life insurance in a fiscally efficient way and that that should be extended to include critical illness as well as life cover (and we’d add income protection cover too). After all, HM Treasury’s own civil servants will have both life cover and health benefits included within their pension ‘entitlement’. To penalise private employers for wanting the same would be wrong (albeit just what the Government did when it put a stop to pensions term assurance some years back).
Was adding CI to RLPs part of the original thinking behind the 2003 Act? Probably not (OK invariably not) but that doesn’t matter. It is what the legislation says that’s key, not what others might have wanted it to say.
Will this move lead to RLPs going the same way as PTAs? We hope not but, even if that happens, any legislative change is unlikely to be retrospective.
Can other benefits also now be included under RLPs? That seems unlikely unless the legislation changes. So, no spouse/partner cover and no children’s cover. We can live with that.
To date, RLPs have been relatively slow to take-off. One benefit of Aviva’s new option may be that more advisers (and employers?) will look at the benefits of RLPs. Yes, they are more complex than ‘life’ life plans and there are traps for the unwary (you can’t take out an RLP if one of the main reasons is to get tax relief on the premiums for example) but RLPs should be being bought by more businesses than is currently the case and more advisers should be considering them too.
Will other insurers follow Aviva’s lead? Almost invariably, yes. Will that lead to so much more business that the Government feels obliged to stop this ‘tax avoidance’? We hope not. But even if it does, we think Aviva has made the right decision by opening up this new line within the now established RLP market.
Plus points: The first to make CI benefits available on a tax-efficient RLP platform; A well-researched market development; Guaranteed or reviewable rates; Includes Best Doctors service too .
Not so plus points: The tax benefits of RLPs could be scrapped or reduced at any time (albeit the risk may be relatively low and any change is unlikely to be retrospective) ; Not available to spouses or partners; No children’s benefits; RLPs lose their tax advantages if the main reason to have an RLP is to gain its tax advantages so care needs to be taken in how such products are sold. .
Website: http://www.aviva-for-advisers.co.uk.
Rating (max 10): Innovation: 10. Overall: 9. Platinum
Tags: Term; Aviva