Means tested

indigofreeze

I've read that lump sums in a life insurance policy are disregarded when claiming UC.

If I took out the interest on a monthly basis from the policy, do I need to declare this as income or is this also disregarded?

Thank you

kaMelo

How can you take interest out of a life insurance policy?

Newcad

There isn't any Lump Sum in an insurance policy, and they don't pay interest.

You pay a premium to be insured and that's it, unless you make a claim.

I believe that you may be thinking about an Annuity policy or maybe a Pension?
Possibly a Deferred Annuity or Deferred Pension?

EDIT - You said back in May that you had two Private Pensions, so I'll assume they are what you are talking about.

If you take any income from (either or both of) your Private Pension(s) then what you take will be counted as "Unearned Income" for means teated benefits and the benefits will be reduced accordingly.

If you convert the pension(s) to an Annuity and take an income from that Annuity then what you take will be counted as "Unearned Income" for means teated benefits and the benefits will be reduced accordingly.

Any lump sum that you take at this point will be classed as capital/savings and depending how much you take could affect means tested benefits.

If you leave the pensions where they are then they are 'deferred' and do not affect means tested benefits (until you reach state pension age).

indigofreeze

Thanks for the replies and sorry for the confusion. 

Just to clarify, I have a capital investment bond which is a type of life insurance policy. It pays out 101% if you die.

I want to take out the interest it earns and want to know if this will be treated as earnings and means tested.

I've not touched my pensions.

kaMelo

indigofreeze said:

Thanks for the replies and sorry for the confusion. 

Just to clarify, I have a capital investment bond which is a type of life insurance policy. It pays out 101% if you die.

I want to take out the interest it earns and want to know if this will be treated as earnings and means tested.

I've not touched my pensions.

No that is capital not income but that doesn't mean it is not relevant for means testing The total value of the bond is classed as capital, and should be declared as such.

HappyHarry

Sorry - I disagree with the poster above.

Capital Investment Bonds are life insurance policies and should be disregarded as capital for means testing. Any funds drawn from them usually count as income as the withdrawals and gains are taxable as income rather than CGT.

Edited: I initially said capital redemption binds which would be inaccurate. However the OP has a capital investment bond with an element of life assurance which is somewhat different.

kaMelo

HappyHarry said:

Sorry - I disagree with the poster above.

Capital Redemption Bonds are life insurance policies and should be disregarded as capital for means testing. Any funds drawn from them usually count as income as the withdrawals and gains are taxable as income rather than CGT.

Whether the money is taxable and if so under what tax regime is irrelevant.

 

The bond can be cashed in so is available capital,  the returns, just like interest from a bank, is classed as capital. 

Under what rule do you think it should be disregarded?

HappyHarry

kaMelo said:

HappyHarry said:

Sorry - I disagree with the poster above.

Capital Redemption Bonds are life insurance policies and should be disregarded as capital for means testing. Any funds drawn from them usually count as income as the withdrawals and gains are taxable as income rather than CGT.

Whether the money is taxable and if so under what tax regime is irrelevant.

 

The bond can be cashed in so is available capital,  the returns, just like interest from a bank, is classed as capital. 

Under what rule do you think it should be disregarded?

This bit from www.gov.uk

Universal Credit: money, savings and investments

...

You do not need to tell us about:

• life insurance policies that have not been paid out

Universal Credit: money, savings and investments - GOV.UK

HillStreetBlues

 Case Law is R(IS) 7/98, and DM guide confirms it.
 https://assets.publishing.service.gov.uk/media/672b76a2094e4e60c466d22a/admh2.pdf

Investments which include life insurance
H2044 Investments which include some life insurance are disregarded indefnitely if the agreement
states how payment on death is worked out. It does not matter whether the amount paid on death is
1. more than or
2. equal to or
3. less than
the amount the person would get if the investment is surrendered the day before the date of death1
.

OP has stated it pays out 101% on death so fulfils the above, so is disregarded.

kaMelo

I don't know how I missed that paragraph, thank you both for the correction.