It was announced in the summer budget that the rate of Insurance Premium Tax, which presently stands at 6%, will be increased to 9.5%, on premiums that are paid on most insurance policies, from 1st November 2015. This increase, amounting to almost 60%, is likely to have a dramatic effect on the amount that households pay for their family insurance policies over the course of a year.
The rise will directly affect all motor, building, contents and pet insurance policies and estimates suggest that the additional cost to an average UK family, with more than one car and insurance for their house and contents, will amount to between £50 and £100 per year. Those who are likely to be most affected by the increase are younger drivers, whose already heavy annual insurance premiums will be even higher. The government estimates that the increase will net over £8 billion for the Treasury over the course of the next six years.
Although the government line was that the increase would not have a direct impact on UK families, because the insurance providers would absorb the increase, the reality is likely to be somewhat different. In fact, two of the UK’s biggest insurance providers, Aviva and RSA, have already confirmed that they will be passing on the increase to their customers and most, if not all, of the other insurance companies are likely to follow suit.
The increase will not affect life insurance policy premiums, which are exempt from Insurance Premium Tax. That is also the case for the insurance premiums of disabled people who qualify for the Motability scheme, as insurance for vehicles provided under that scheme is also exempt from the tax. Nor, happily, will it affect travel insurance policies, as the Premium Tax on family travel insurance, which already stands at a heady 20%, will remain at the same level for the immediate future.
Despite this increase in the cost of family insurance it is important to avoid the temptation to do without it, as the financial consequences of doing so can be disastrous. It does, however, make it all the more important that you shop around and compare as many products as possible before choosing those all-important family insurance policies.