Insurance prices to rise following tax hike
Insurance prices are likely to rise on average by up to £6.50 a year following a hike in taxes that is a “raid on the responsible”, according to the Association of British Insurers (ABI).
Insurance Premium Tax rose from 9.5% to 10% on 1 October, a decision that was first announced in the Budget in a move to fund investment in flood defence and resilience measures.
The tax last rose on 1 November 2015 when it increased from 6% to 9%.
- Use our Comparison tools to cut insurance costs
But while IPT is a tax on insurers, it’s typically passed on to consumers. The ABI explains that because IPT is a tax the Government applies to individual policies, people who have the highest insurance costs – such as young drivers or those with on-going medical conditions – attract the highest amounts of tax.
Businesses are also affected when they buy cover for their premises, vehicles, and to guard against issues such as business interruption.
According to the ABI, prices on four major consumer insurance policies are likely to increase as follows:
|Policy type||Average annual increase from 1 October 2016||Average annual increase following both IPT hikes|
|Combined building and contents insurance||£1.60||£12.50|
|Comprehensive car insurance||£2||£16|
|Private medical insurance||£6.50||£52.50|
Source: ABI, 30 September 2016.
“A raid on the responsible”
The ABI’s director general, Huw Evans, says: "These two IPT increases are a raid on the responsible, taking advantage of those who already do the most to avoid becoming a burden on the state. The Government should be in no doubt that such steep increases in insurance premium tax may eat into the finances of both households and businesses. Any further hikes would be indefensible."
Travel insurance attracts a higher rate of IPT at 20%, which is unchanged. Life insurance is exempt from IPT, as are a few other specific insurance products, such as insurance for spacecraft and commercial ships and aircraft.
Private medical insurance
PMI allows you to skip the NHS waiting list and arrange treatment at a time you choose. With most PMI policies, you pay a monthly premium (the older you are, generally the higher premium) and the policy will then pay out, up to specified cover limits and after an agreed excess, for any treatment you might need. Not all conditions are covered by PMI and you get what you pay for: the more cover you want, the higher your premium will be.
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).
Does exactly what it says on the tin: covers the contents of your home for theft and damage and also may insure certain possessions (jewellery, cycles) outside of the home. Things to watch for include the excess and also the maximum payout on individual items. Another grey area is kitchen fittings, as some contents policies say these are not contents but part of the fabric of the property and covered by buildings insurance and some buildings policies don’t cover them because they regard them as contents.
Association of British Insurers
Established in 1985, the ABI is the trade body for UK insurance companies. It has more than 400 member companies that provide around 90% of domestic insurance services sold in the UK. The ABI speaks out on issues of common interest and acts as an advocate for high standards of customer service in the insurance industry. The ABI is funded by the subscriptions of member companies.