Paying a premium: the stealth tax forcing consumers to pay more to insure

Consumers are paying more tax than ever before for insurance products. From car insurance to travel insurance, find out how the “the mother of all stealth taxes” is leaving consumers paying a premium for peace of mind — and why people living with medical conditions may be the hardest hit.

How the government profits from insurance policies

Nobody likes paying over the odds for insurance. But have you ever wondered why policies suddenly seem to get more expensive out of nowhere? Or why your travel insurance premium spirals the moment you declare medical conditions?

The answer may surprise you.

You see, the government makes billions of pounds each year from a tax that most consumers know absolutely nothing about. It’s called the Insurance Premium Tax. And it’s a large part of the reason why policy prices have increased over recent years.

What is Insurance Premium Tax?

Every insurer — with a few exceptions — has to add Insurance Premium Tax (IPT) to each and every customer policy. This charge goes straight to HMRC. (By now you may be beginning to see why the Association of British Insurers recently described IPT as “the mother of all stealth taxes.”)

The standard rate of IPT for the majority of insurers is 12%. However travel insurance attracts a far higher rate of 20%. Essentially 20p out of every £1 you pay for your travel cover goes straight to the government. Why? We don’t know. But unfortunately it’s bad news if you are travelling with medical conditions.

Who really profits?

IPT is charged as a percentage of each premium, rather than a flat fee. That means if you are already paying a higher price for travel insurance, your policy can be markedly more expensive — inflated by the higher charge for IPT.

“Unfortunately travel-lovers who are living with medical conditions are often hit hardest,” explains Martin Rothwell, Managing Director of World First Travel Insurance. “There have been a lot of stories in the media recently about how insurance providers profit from consumers who have medical conditions. But here at World First we make no more profit from customers travelling with medical conditions than those without.”

Consumers are paying record tax on insurance products

Have you noticed your insurance policies getting pricier in recent years? You might want to cast your accusatory glances in the direction of the government. The vast majority of insurers are forced to charge IPT. On top of that, the Chancellor of the Exchequer raised IPT three times between October 2015 and June 2017, doubling the standard rate from 6% to 12% for most insurers. (Travel insurers have been subject to a higher rate of 20% since January 2011.)

It all adds up to the unsavoury fact that consumers are now paying record amounts of tax on insurance — with the government raking in £1.35bn tax revenues in August 2018 alone.

Between October 2017 and September 2018 (inclusive) IPT revenue totalled a whopping £6.13bn. To put that figure in perspective, in the same period the government earned:

• £3.60bn from beer duties
• £2.97bn from betting and gaming tax

Meanwhile the new sugar tax is expected to raise a mere £300m in its first year. In short: IPT is a serious money spinner for the government. And consumers are paying the price.

The insurance industry is trying to protect consumers

It seems unfair that the government should levy a charge on consumers who are following the law, being conscientious and taking out insurance policies. Why should you be penalised for doing the right thing? That’s exactly what the insurance industry thinks too.

“In the run up to the recent Autumn Budget, the insurance industry lobbied hard to deter the government from further increases to IPT, which would result in consumers paying higher premiums,” explains Martin Rothwell. “As a result the rate of IPT has been frozen for another year. However further lobbying is required to prevent future increases and protect consumers for as long as possible.”

A fairer price for travellers with medical conditions

As you’ve probably noticed, there are hundreds of different travel insurance companies out there. World First is one of a small handful using an advanced method of medical screening that works in favour of the consumer. Essentially it gives our customers the opportunity to go in to more detail about how their medical conditions are managed. That way we can judge the actual risk, rather than making kneejerk decisions that pump up the premium.

The result? We can often offer policies for travellers with medical conditions that are far cheaper than you will find elsewhere. After all, why should your medical condition prevent you from spreading your wings? Sometimes travel is the best medicine of all! Find out what our customers say about us here, or get an instant quote on our website.