Have you noticed your insurance costs have been bumped up a little over the past couple of weeks? If so, you are likely to have the Insurance Premium Tax (IPT) to thank.
At the beginning of November this year, the increase in insurance tax came into play. The new rates were announced by George Osborne in the government’s summer budget plan. It will see a rise in a broad range of insurance premiums. These include building and contents insurance, car insurance, medical insurance and pet insurance.
The IPT has been around for a long time but was 6%. It has now risen to 9.5% as of November 1st. While some may not experience too much increase, there are millions that will be affected. 7.3 million car policies will go up in monthly costs, and 4.7 million households will have to find a little extra, too.
On average, the average comprehensive car insurance will rise by £13 while combined building and contents cover will go up £10. One of the worst hit sectors will be medical insurance, which goes up by an average of more than £40. Pet insurance increases by around £10. The increase in IPT is estimated to earn the government an extra £8.1 billion in taxes by the year 2021.
However, there are some that will be hit much harder than others. For example, drivers under the age of 22 will pay more than £40 a year extra each year, and drivers in London will pay over £30. With premiums for car insurance having risen by 10% over the summer anyway, that all points to a steep increase. Whether it will also see an increase in a number of young people driving without insurance remains to be seen.
Looking at each premium separately, and it doesn’t seem to be too much to worry about. However, bring them all together and it’s a significant hike in costs that are necessary for many people’s lives. Let’s assume that you have a couple of cars, medical insurance, and a pet, you will be looking at an extra £100 a year. It doesn’t matter whether you insure your horse or insure your home; the chances are the cost of your premiums have risen over the past few years. And this little bit extra could start making a more severe dent in your finances.
There are ways to reduce the pain, however. People can use services such as uSwitch to find cheaper insurance bills than they are currently paying. Anyone at the end of a contract should be doing this anyway, as insurers tend to give better introductory rates.
People could also switch policies if they are still tied into a contract. However, they will need to look at the differences in costs and consider exit charges to make sure they are still saving.
Other insurance premiums operating in different categories will remain the same. Travel insurance, for example, already has an IPT of 20% and will stay at that level for the foreseeable future.
