How will the insurance premium tax rise affect my policy?

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How will the insurance premium tax rise affect my policy?

Those drivers who thought that car insurance was already sky-high could well be in for a surprise, as it’s about to get worse.

Initially introduced in 1994 at four per cent, it was increased in 2015 for only the second time from six per cent to 9.5. A year later, that rose to 10 per cent and now another two per cent has been added.

This represents a doubling of IPT in just a few years.

The rise will affect every type of insurance, including car, travel, pet and private medical policies.

However, a spokesman from the Treasury said: “Insurance premium tax is a tax on insurers, not consumers – insurance firms decide whether to pass it on to their customers or not.

“IPT is higher in several European countries, including France and Germany, than it is in the UK.”

This means that though tax has been increased, consumers may not see a rise – though the likelihood is that they will.

Fortunately, the change shouldn’t cause a drastic rise in the cost of a policy. The Association of British Insurers (ABI) estimates that a typical 19-year-old could be facing an increase of just £20 on their annual bill.

That said, it could see the average household’s annual insurance bill rise by £283.

Insurers are promoting black boxes to help lower car insurance and, though some motorists may feel uncomfortable knowing that there is a device tracking their vehicle, the data is only used to advise whether a discount should be offered. 

Kevin Pratt, consumer affairs expert at MoneySupermarket, recommends using one of these devices, known as Telematics.

He said: “Telematics offers a cheaper alternative to traditional policies if the driver can demonstrate he or she is a lower-risk proposition than the statistics for their demographic suggest.

“Black boxes also make the roads safer by incentivising good driving habits.”

It could be a small price to pay to pay a small price on your car insurance.