Millions of UK households will see their insurance costs increase as the standard rate of tax paid each time an insurance policy is purchased increases.
Insurance premium tax rose from 6% to 9.5% on November 1. Insurance Premium Tax is the tax paid to the government each time an insurance policy is purchased in the UK.
Six obscure motoring laws you might not know about.
Worryingly, a survey, commissioned by UNA, the insurance organisation owned by 12 of the UK’s largest regional insurance brokers, found that 42% of 1000 consumers had not even heard of the rise.
Tim Ryan at UNA commented: “The primary concern with the insurance premium tax rise is that it will now cause a number of consumers to forgo buying insurance, which increases their personal risks, and in the case of motor insurance could mean a rise in illegal drivers.”
If you’re unsure about the changes, here’s what it means for you:
Why the rise?
Instead of insurers being to blame for bills going up, this is the work of the government. This marks a 58% increase in what the government takes from your premium.
According to official figures, the tax increase will bring in an additional £8.1 billion for the Treasury by 2021. This was the second largest revenue raiser in the summer Budget.
It was announced in the post-Election Budget and was defended on the grounds that premiums for household policies had fallen and the tax was still less than in neighbouring European countries. The tax was introduced in 1994 because the insurance sector was seen as being under-taxed.
Is your council using CCTV to spy on you?
Who will pay more?
Anyone buying or renewing cover will see an increase in their bills.
The Association of British Insurers estimates that the hike will add nearly £13 to the average comprehensive motor insurance policy, more than £10 to the average combined building and contents cover, more than £10 to average pet insurance and more than £40 to the average private medical insurance policy.
Six taxes you can legally avoid.
What about other types of cover?
The Government exempts life insurance and mortgage insurance from the tax entirely.
Insurance for spacecraft, commercial ships and aircraft, international railway rolling stock and lifeboats and lifeboat equipment and goods in international transit are also exempt.
However, a higher rate remains unchanged at 20% for travel insurance and warranties for some mechanical and electrical goods.
Five travel insurance traps to avoid.
How can I offset the hike?
It’s not worth scrimping on cover if you want to protect your family and assets. But you can take some steps, such as comparing quotes from different companies when it comes to buying new cover.
Study the terms and conditions and any exclusions so you know what you’re buying.
When it comes to renewal time, dig out last year's documents and compare the price. If there is a very large increase compared with the previous year, make sure your insurer can justify it.
Typically, switchers can save up to £212 a year on car insurance and £57 on home insurance, according to comparison website MoneySupermarket.com.
For more useful information and news, browse our money articles.