Income from Life Insurance Products

    VEA

Types of life insurance products

Life insurance products can be categorised into three 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 that:
  • is usually the policy owner's, but
  • may also be the policy owner's partner, or
  • may be another person.
• a policy matures:
  • at the end of the specified term,
  • on the death of the life insured, or
  • on early surrender or withdrawal.

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 payment following death 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.

The policy owner, or policy holder, 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.    
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  Chapter 10.2 Assets

   

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Income from unbundled life insurance and insurance bonds

Unbundled life insurance policies and insurance bonds are managed investments. All managed investments are financial investments which are assessed using the deeming provisions.    

Income from conventional life insurance policies

Conventional life insurance policies are not financial investments.  Bonuses accumulate on conventional life insurance policies during the term of the policy. On withdrawal, surrender or maturity of the policy, the difference between the total amount received on withdrawal, surrender or maturity and the sum of the purchase price and premiums paid by the investor is assessed as income for 12 months.