Looking at my own aviation policy it clearly states that cover is suspended “whilst the aircraft is being piloted by any person other than as stated in the schedule” with an exception for ground operations by a competent person. It does not have cover for instructional use.
To me this means that if anybody not listed in the schedule either specifically or as a class of persons entitled to cover under the policy is piloting the aircraft (i.e. handling the controls in flight) then the aircraft is uninsured at that time. I don’t think that the argument that the person piloting the aircraft is not the PIC will wash. Since it is a legal requirement to have third party cover when the aircraft is being flown then that portion of the flight is illegal. This seems to imply that under my policy if I, as PIC, allow someone other than a syndicate partner to handle the controls in flight I’m both uninsured and illegal as long as that situation continues.
As always, it does not matter too much until something goes wrong!
No doubt some will argue that handling the controls is not the same as piloting the aircraft if an PIC listed in the policy schedule is in a pilots seat. The question is whether the insurance company will agree when a claim is made.