At the beginning of this month a new rate of insurance premium tax (IPT) came into effect, meaning it now stands at 10%, up from 9.5%. The Association of British Insurers (ABI) has called this a "raid on the responsible", but what does it mean for you?
On the surface, an increase of 0.5% doesn't seem that dire, but this follows an increase from 6% which took place in November last year, meaning the tax has risen by more than 66% in less than a year. If you have any kind of insurance, you are likely to be affected by this, as any new policy (or policy renewal) you take out after the end of September will have this extra tax on it (with the exception of life insurance, mortgage insurance, travel insurance which has a set 20% IPT rate, and some commercial policies).
In real terms, the increase in IPT means that the average pet insurance policy will now be around £1.50 more expensive, while buildings and contents insurance sees a rise of £1.60 and motor insurance will be up by around £2. Medical insurance sees the largest rise, at £6.50 more for an average policy, which does not even account for the increased cost to someone with an ongoing medical condition, whose policy is already more expensive than the average. Young drivers are similarly likely to feel the percentage increase in motor insurance more than most.
Given that the ABI's data further shows that the average comprehensive motor insurance premium in the second quarter of 2016 had risen by 10% in a year, to stand at £434, while buildings and property insurance was down by less than 1% to £309, the Government's policy is certainly not helping to keep insurance affordable.
ABI's director general Huw Evans remarked: "Insuring your home or business, your health and your possessions is the wise thing to do, taking responsibility for protecting yourself from some of the unexpected events in life. Insuring your car is a legal requirement. 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."
Indeed, if one looks at the combined rise caused by both IPT hikes, the average cost of private medical insurance has risen by a whopping £52.50 simply due to tax alone. And tax isn't the only thing that's on the rise, with recent news showing a continuing increase in the cost of car insurance, for instance. All of this means that if you're renewing or taking out a new insurance policy anytime soon, you should remember to budget for a higher premium than you may be used to.
While we can't do anything to avoid the tax, as it is applied to every individual policy by law, there are things you can do to make sure your insurance doesn't go up too much, the most important of which is to compare quotes and make sure you can find the most competitive policy available. To help get you started, why not try one of our insurance comparison tools?
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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