Income Tax (Trading and Other Income) Act 2005 section 738

Risk of significant loss

Section 738 sets out a condition requiring that health or employment insurance policies must involve a genuine commercial risk of significant loss for the insurer.

• Throughout the life of the policy, the health or employment risk provisions must be such that, if they stood alone as a separate policy, the insurer could face a significant loss on the premiums collected.
• When assessing whether a significant loss is possible, any investment return the insurer earns on the premiums must be taken into account.
• Reinsurance arrangements are to be ignored when determining whether the risk of significant loss exists.
• This condition must be satisfied by all health or employment insurance policies seeking exemption from income tax under section 735.