Insurance costs to rise as premium tax increase comes into effect
The start of November sees ab increase in insurance premium tax that will push up the average family's insurance costs by around £100.
Insurance policies are going to cost more from November 1, following an increase in insurance premium tax.
A family with two cars, a pet and medical insurance is likely to pay almost £100 a year extra once the increase comes into effect, according to the Association of British Insurers (ABI).
What is Insurance Premium Tax?
Insurance premium tax (IPT) is a tax that’s added to each insurance policy bought in the UK. At the moment we pay 6%, but from November 1 that’ll rise to 9.5%.
The ABI estimates that it the rise will affect 7.3 million car policies, 4.7 million household policies, three million pet policies and three million private medical insurance policies.
Insurance policies with a start date after October 31 will be charged IPT at the new rate. This adds:
- almost £13 to the average comprehensive motor insurance policy;
- more than £10 on combined building and contents cover;
- more than £10 on average pet insurance;
- over £40 on private medical insurance.
Life insurance and mortgage insurance are both exempt from the tax, while the higher insurance premium tax rate of 20% still applies to travel insurance and warranties for some mechanical and electrical goods.
According to the government, the IPT increase will bring in an extra £8.1 billion for the Treasury by 2021, the second largest revenue raiser in this year’s Summer Budget. The rise on 1st November is the fourth increase in standard rate since the tax was introduced in 1994.
[Related story: How your face could land you with a higher insurance bill]
Can you beat the rise?
If you have an insurance policy which is due for renewal within the first 12 days of November, you could be better off switching on October 31 before the rise comes into effect. Take exit fees and the cost of the remainder of the policy into account as well as the potentially losing a full year’s no claims bonus.
Beyond that, the usual best practice of getting a cheaper insurance policy applies. Don't ever accept your insurer's renewal offer – make sure that you shop around, only get as much cover as you need, and pay it all up front.
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