18.104.22.168 Income from Life Insurance Products
This topic provides information on the following matters:
- types of life insurance products,
- common features of life insurance products,
- income from life insurance products, and
- conventional life insurance policies - bonuses.
Types of life insurance products
Life insurance products can be categorised into 3 groups:
- conventional life insurance policies,
- unbundled life insurance policies, and
- insurance bonds.
Common features of life insurance products
All life insurance products have features in common:
- benefits are purchased with 'premiums',
- investment returns, which are added to the policy under some contracts, are called 'bonuses' or 'reversionary bonuses',
- a life is insured:
- usually the policy owner's, but
- may also be the policy owner's partner (1.1.P.85), or
- another person.
- a policy matures:
- at the end of the specified term, or
- on the death of the life insured.
Explanation: If there is more than one life insured, the policy matures on death of all of the lives insured. If the life insured is also the policy owner, the death benefit is usually paid to the policy owner's estate.
Income from life insurance products
If income is assessed for an insurance policy, it is usually assessed in relation to the policy owner.
Explanation: The policy owner, or policyholder, who usually pays the premiums:
- receives the benefits when the policy matures, or
- may surrender the policy in exchange for a cash value if this is allowed for in the terms of the policy.
Unbundled life insurance policies and insurance bonds are financial investments. The assessment of these products is covered in Chapter 4.4.
Conventional life insurance policies - bonuses
Bonuses on conventional life insurance policies are NOT assessed as ongoing income during the term of the policy. On maturity/surrender/cashing in of bonuses, the difference between the maturity/surrender payment and the sum of the purchase price (if any) and premiums paid by the investor over the life of the product IS assessed as income for 12 months. This applies for both pension and benefit purposes.