Women could pay 30% more for life insurance
Women may soon have to pay up to 30% more for their life insurance premiums, according to reinsurer RGA UK Services.
The announcement of a new tax structure for protection products in yesterday's Budget could push premiums up by 10–15%.
Costs for women in particular could then rise by another 10–15% thanks to the recent European Court of Justice (ECJ) ruling that gender can no longer be a pricing factor in insurance.
In the Treasury's budget document it says: "The government will introduce legislation to remove protection business from the income minus expenses life tax system designed to tax investment type business and align it with the tax treatment of other trading entities."
Removing protection businesses from ‘the income minus expenses life tax system' means that businesses with investment arms will no longer be able to offset the costs of their protection business against their investment business.
"With short–term policies lasting five or 10 years, the administrative costs can be really expensive and not being able to offset could therefore add on 10–15% to the premium cost," says David Gulland, managing director of RGA UK.
This tax change won't happen until 2013, giving life offices a chance to review their arrangements although it's likely customers will see some increase, says Kevin Carr, managing director of Kevin Carr Consulting.
"We don't know exactly what will happen but the general consensus is that the cheapest premiums will end up costing more than they do now."
He says this, along with the EJC ruling revealed a few weeks' ago is another reason to sort out life insurance policies before the changes come into effect.
In the long term, this tax change however, could create a more level playing field in the industry, says Gulland.
"Although in the short term customers could be hit by this double whammy, it will be easier for new companies to come into the market and make premiums more competitive."
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).