Quick- buy your insurance now to save yourself £13
You’d better get your skates on as changes to Insurance Premium Tax (IPT) announced as a surprise in the summer Budget will add £13 to the cost of running a car and £10 for a pet's medical cover from Sunday, being the 1st of November.
IPT is currently charged at 6.5% but will soon be going up to 9%, an increase which isn’t actually going to hit insurance companies at all, just us poor consumers, as insurers freely admit the additional cost will be directly passed on to customers.
That’s not great news for those insuring the 7.3 million cars, 4.7 million households and 3 million pets who will be affected, according to ABI estimates.
Although the increase will affect most types of insurance, including medical insurance and motorbike insurance, if you ever need to insure your spacecraft or lifeboat equipment, you can breathe easy as these are actually completely exempt from IPT. Travel insurance and insurance of warranties will also escape an IPT rise- but only because these products are already charged at a premium rate of 20%
So is it worth buying your policy now? Well if you buy a policy effective immediately either today or tomorrow you will escape the charge, but the increase will affect any policy starting from 1 November regardless of when a customer bought the policy, so it’s no use trying to buy in advance. If you don’t need insurance until after 1 November, buying now to beat the rise is unlikely to be cheaper than the additional cost of being insured twice for the overlap period. And even if you do beat the deadline now, you will have to pay the increased amount on your next renewal.
So what does the 2.5% price rise look like in cash terms? The average annual car policy will go up to £392 from £379 today, an increase of £13. It’s worse news for younger drivers though, who could see premiums increase by £42 a year, according to the AA, as they already get stung pay the highest premiums of any age group. Their new average premium will now be £1,319, up from £1,278. In fact, some insurers have lobbied the Treasury to exempt younger drivers from insurance premium tax for at least the first year of their first car insurance policy. A mere drop in the ocean perhaps.
But still, when it’s a tax on a compulsory insurance, it’s pretty much a compulsory tax rise for all car owners, like it or not. "Millions of people across the country face being hit in the pocket by this rise," said James Dalton of the Association of British Insurers (ABI).
"Whether it’s a legal requirement or you want to buy extra cover, insurance is a financial safety net, not a luxury," he finished, folding his arms.