It can sometimes take a couple of months for the main announcements from a Budget to come into effect – as is the case with the changes to Insurance Premium Tax (IPT). In the 2016 Budget speech, it was announced that IPT will rise by 0.5% to 10% on 1st October.
This price hike is expected to push up the cost of insurance policies for covering cars, homes, pets and medical bills. To make sure you know what this means for you, we're going to take you through how you could be affected by this new tax rise.
Second price hike
IPT is a tax added to the total cost of some insurance products, including car insurance and home insurance policies. It is collected by insurers on behalf of the Government. The Government has said this latest increase will help fund new flood defences and maintain existing ones.
This latest price hike might not sound like a lot, but it is the second increase to IPT in less than a year. In November 2015, the IPT basic rate increased from 6% to 9.5% – the first time it has increased since 2011.
From 1st October, the standard rate of IPT will increase from 9.5% to 10%. The higher rate remains at 20% – this is what you pay on some insurance policies including travel insurance and electrical appliances insurance.
Ahead of the latest IPT rise, Consumer Intelligence revealed that the average annual car insurance bill increased by 13.5% in the past year. The average car insurance premium is £788.
How much will this cost me?
According to ABI (Association of British Insurers), the average car policy is likely to go up by £2 a year, while the average combined buildings and contents policy could increase by £1.60 a year.
You might notice a difference when it comes time to renew. In comparison with this time last year, the average car insurance policy could jump up by more than £16. And what’s more, the average home insurance policy is likely to go up by more than £12.50.
In particular, it's thought that young drivers and those than live in London (who pay the highest premiums) will feel this rise the most.
This price hike came into effect on 1st October, so you may notice a difference if your policy is up for renewal soon. Your payments will not change if you pay by instalments and are part way through your policy.
What can I do?
While there's nothing you can do to stop the price hike, you can take certain steps to get a better deal on your insurance.
Shop around – insurers tend to offer their best deals to new customers, so it's worth shopping around when it comes time to renew again. Price comparison sites can be helpful for comparing policies like-for-like, but don't forget to check standalone companies too.
Increase your excess – deciding to voluntarily increase your excess can mean that you pay a lower monthly premium. You have to be careful when doing this though. There's no point increasing your excess to £1,000 when your car is only worth £800, as you won't get anything if you write the car off.
Fully comp – a common misconception is that third party is cheaper than comprehensive cover, but in most cases it's not true. You might even be charged more, as some insurers could assume you're more likely to be a careless driver and therefore more of a risk.
You can find out more about how to reduce the cost of your car insurance in our blog.
Time to renew your car insurance? At thinkmoney insurance, we compare deals from leading UK insurance providers – including Zenith, AXA and Sabre – for you. If you're an existing thinkmoney customer, you could receive up to a 20% discount too.