Insurance Tax Rising: The Impact on Consumers

InsuranceIn his July budget, George Osborne announced that the tax paid on insurance products (Insurance Premium Tax or IPT) is to rise by more than half. This will take effect in November of this year. But how significant is this change going to be at the consumer level?

The change will certainly be a noticeable one. Both vehicle and home insurance premiums will increase as a result of the higher level of tax. However, fortunately the impact on consumers is not likely to be bank-breaking. Currently, tax only adds 6% to the pre-tax value of a premium, so it only represents a fairly small portion of the total that people pay. Only this modest tax portion is experiencing an increase, rising to 9.5% of the premium’s pre-tax cost. The increase to the amount that consumers pay will therefore be noticeable, but not massive.

As IPT, like the vast majority of taxes, is charged as a percentage of the total, those who already pay higher premiums will be worst-hit. The larger the pre-tax premium, the greater the value that will be added to it by tax. The single worst-hit group is likely to be young, newly-qualified drivers who can find that their first insurance premium comes to well over £1,000. The average newly-qualified, 17-year-old driver pays £1,869 for their first year of cover, according to the Watson Car Insurance Price Index, and the tax increase would add an extra £60 to this figure.

The average comprehensive car insurance premium across the board, according to the same index, is £600. A premium of this value will increase by £20 after the higher rate of IPT takes effect.

The reason for the increase in IPT, Osborne claimed while delivering his budget, is to bring the amount levied on insurance premiums closer to the levels charged in the world’s other major economies. Britain’s current, outgoing IPT rate of 6% is, he claimed, “well below tax rates in many other countries.”

Many types of insurance are subject to IPT. The most common products on which this tax is charged are vehicle insurance policies and home insurance, including contents insurance. Other kinds of insurance, such as many kinds of health insurance and all standard life insurance products, are exempt from this tax and should therefore be unaffected by the changes.

Still other types of insurance are subject to different rates of tax instead of IPT. Travel insurance, for example, is subject to a different tax charged at 20% of the policy’s pre-tax value. This should also theoretically be unaffected by the changes, as only IPT is being increased.

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The Numbers Behind the PPI Claims Scandal

As you know, we love a good infographic here at Financial Reform! And having followed the Payment Protection Insurance (PPI) scandal closely, we’re delighted that someone has finally taken the time and effort to produce a visually pleasing yet informative infographic about the controversial subject!

It’s no surprise, looking at those numbers, that PPI mis-selling was such common practice within all branches of all banks across the country… 87% commission paid to financial advisers for selling the policy – WOW!! But they’re now paying the price as it’s estimated the the total refund bill will be approx. £25billion… making it the biggest compensation scheme ever in the UK.

More information about the facts and figures behind this infographic can be found on the PPI Claims Company website.


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Which Type of Life Insurance Policy Do You Need?

When you see how many different types of life insurance policy there are you will realise that it makes sense to think about the subject before choosing.

Sadly, many people spend too little time arranging their cover and this can result in the wrong type of policy being taken out. In order to avoid this happening to you the best idea is to learn the basics about the basic types of cover.

Term Life Insurance

This is a simple and effective type of policy for most people. It covers you for a set term and will only pay out if you pass away before this term ends. It tends to be good value, especially for young and healthy people who don’t need an especially high level of cover. Arranging a quote on the internet is simple and won’t take up much of your time.  This sort of policy will help your family pay the bills or pay off some debts if they are left without your income.

Mortgage Life Insurance

If you are thinking of buying a house with a mortgage then you will probably need to arrange this type of life insurance policy at the same time.  It is similar to the type of cover we just looked at but it will be tied in to the amount and the term of the home loan it is protecting. This simply means that the mortgage gets paid off if you pass away while you are paying it.

Whole of Life Insurance

This is a more comprehensive type of cover in that it pays out when the insured person dies, no matter when that is, provided that they have carried on paying the premiums up until then. It is generally a much more expensive way of getting life cover.

Critical illness Cover

This is a type of insurance policy which pays out if you are diagnosed with a serious medical condition but survive it. It is another extremely useful type of cover and when you are arranging life insurance quotes you might find that it is automatically included with the life cover.

Over 50 Life Insurance

Life insurance tends to be cheaper when you are younger but there is also a big demand for policies for more mature people too. To meet this demand there are some excellent, low cost insurance policies around for customers over the age of 50. These are easy to arrange and can give great peace of mind to someone who is worried about leaving behind debts or who wants to cover funeral expenses.

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The Upside to PPI Policy Scandal

Heading into the Christmas season, we may actually see the silver lining to the PPI policy scandal. Specifically, consumers are walking around with a little extra cash in their pockets, courtesy of the banks involved in the scandal.

It has been heard in recent weeks that, in an effort to boost a declining economy, the government has considered organizing “helicopter drops of money.” In other words, if this idea goes through, we will all be receiving a nice sum of money from Chancellor George Osborne in the near future for our Christmas shopping.

Just last week, Sir Mervyn King unleashed the full power he holds in office to put a stop to the plans. He argued that the handing out of huge wads of non-recoverable cash to consumers would be a dangerous and inflationary move that would put the Bank at risk for bankruptcy.

Of course, King can rest easy at the moment because there is actually no need for the Bank and Treasury to be dropping money anywhere. This payout is going to consumers via the high-street banks involved in the PPI policy scandal.

According to the FSA, £6.5 billion worth of compensation has been handed out since the beginning of 2011, with the Lloyds Banking Group paying £5.3 billion of that sum. Although total provisioning for PPI claims currently stands at over £12 billion, it is expected that that number will rise to at least £15 billion. If the banks pay out two-thirds of the money they have set aside to their customers, we should expect to see a £10 billion potential demand boost.

A £12.9 billion in PPI compensation may be seen as modest, especially considering a £1.5 trillion economy, but it is still substantial enough to see a noticeable increase in consumer spending. The average person is seeing a PPI payout of £2,000-£3,000. It’s a nice sum after years of watching living standards spiral downward.

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Insurance Essentials for the Self-Employed

If you are self-employed, you must adhere to health and safety laws. Most people go about their work unaware of the paperwork and policies needed such as first aid and fire precaution, simply because it is the employer’s responsibility to take care of this.

But as a freelancer the onus is on you to ensure your own safety as well as those around you. It is your responsibility to comply with regulations and to keep your clients safe.

So here are some expert health and safety tips for being self-employed and remember; it pays to follow them unless you want to end up standing in front of a judge for liability!

  • What does the law say?

The Health and Safety at Work Act 1974 states that you have the duty to make sure you and others affected by your work activities are no exposed to harm. However the Act is currently going through a consultation to excuse those in ‘low risk’ occupations.

The Löfstedt review is campaigning to exempt contractors from the law whose work poses no potential risk of harm. If the report is acted upon, it could benefit up to one million freelancers.

Professor Löfstedt stated in the report: “The actual burden that the regulations currently place upon these self-employed may not be particularly significant due to existing exceptions in some regulations and the limited prospect of these being enforced but it will help reduce the perception that health and safety law is inappropriately applied.”

  • What are your responsibilities?


–       Take reasonable care to look after your own health and safety

–       Cooperate with your client’s health and safety procedures

–       Safeguard the health and safety of other people affected by your work

–       Use tools and other equipment properly in line with safety instructions and any training given


  • How can you look after your own health and safety?

One of the ways you can do this is by assessing the risks involved. Next time you do some work, consider the following dangers:

–       Is the work stressful?

–       Do you have to handle any dangerous equipment or substances?

–       Are you medically fit to work alone?

–       Take into account first aid needs; slips, trips and falls; electricity; fire; noise and manual handling

–       Are there contingency plans in case of an emergency or accident?

–       Is there a risk of violence?

Nevertheless, there is always the risk of injury or death as accidents can happen so you should cover yourself just in case with insurance. This just gives you some peace of mind that if you were to suddenly find yourself in the situation unable to work and provide for your family, that you are covered

Employer’s Liability 

This insurance covers you for any liability you may have to your employees.

Public Liability

This insurance will cover you for any liability or death to third parties, and damage to third party property as a result of negligence by you or your employees.


Make sure you follow these health and safety tips to ensure that you and those around you are safe when you are working.

This article was written by Nixon Williams, the specialist accounting company for self-employed individuals. Visit the site today for advice on tax efficiency and to check out the Take Home Pay Calculator.

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Lenders Continue to Reject PPI Claims from Customers

In a recent report, the Financial Ombudsman Service (FOS) continue to receive at least 1,500 complaints a day regarding mis sold payment protection insurance or PPI. The increase in daily complaints is a result of many lenders, banks and other financial institutions rejecting consumer claims, which they should be allowing as big banks have already made adjustments to address the betterment of the situation.

The Lloyds Banking Group was one of the most complained about for mis selling PPI. Around 27,745 complaints have been issued against the bank with 93% of such complaints relating to PPI. Barclays had 23,703 complaints, having 19,522 complaints involving mis sold PPI.

PPI is an insurance product designed to cover loans, mortgages and credit cards from missed payments in the event the customer has financial shortcomings. The PPI’s task is to address these repayments should the customer be laid off from work or have a severe sickness or accident. The exclusions on the payment protection insurance policies had persuaded the high court to urge banks to refund all who have been mis sold PPI which they can’t get a claim for.

UK banks, including Barclays and Lloyds, have set aside a £9bn compensation package to repay borrowers who were mis sold. Half of this amount had been given to customers. However, other lenders are still rejecting claims in which they should actually address.

In the event a lender has rejected your claim, you’ll need to get help from claims experts, such as for advice and knowledge that can help address your situation in the best way possible. If you have a complaint, file one with a claims expert to ensure you get the money you deserve back in your pocket.

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Should Borrowers ‘Do Their Own’ PPI Claims?

UK Consumer groups Which? and MoneySavingExpert have come together to launch an advertising campaign to encourage victims of mis sold PPI to ‘do their own claims’ rather than using PPI Claims Companies… and get this, they’re also planning to hold a “PPI summit” with the big UK banks and credit card providers with the aim of working together to “restore trust in the reclaiming process”.

This story has been published by all household news channels on the internet and in hardcopy over the past few days. Initially, we didn’t really know how to respond to it as anything that raises awareness of mis sold PPI and encourages people to claim back PPI is surely a good thing… right?

The problem we have is that they’re all focusing their attention on PPI claims companies… again… rather than putting pressure on the banks to repay their customers. If it wasn’t for the work done by some of the better claims management companies, the majority of people who have now successfully reclaimed their money… would never have done so and the mis sold PPI scandal would not have become so prominent.

The banks are still delaying the settlement of PPI complaints without punishment and would love nothing less than for PPI claims companies to disappear altogether… as this would mean that the number of people reclaiming PPI would be reduced by upto 75%.

So if Which? and MoneySavingExpert are going to see this through to the very end… until all victims of mis sold PPI have been refunded then we welcome the move. But we live in a cynical world, so please bear in mind that nobody does anything for free not even these so called ‘consumer champions’. The fact that they’re holding a summit with the banks to discuss how to eliminate PPI claims companies is not supported by us at all.

So… do we think that you should, as Which? and MSE so eloquently put it, do you own claims? Well, that depends on you really. The majority of people that use claims management companies do so because they don’t have the time, patience or confidence to deal with the banks themselves. So, if you feel confident that you can see it through then you should consider it as an option.

We recommend that you use a reputable claims management company because this will ensure that you get back exactly what you are owed. The FOS, FSA and FSCS have all come out and said that you are not  likely to receive anymore money if you use a CMC compared to doing yourself.  And, the MOJ has also told CMC’s that they cannot say that they will get you more than if you do it yourself… but we’ve heard form countless readers and CMC’s that the banks regularly offer less money than is actually owed. We spoke to one bank employee who told us that if he’d had a fight with his girlfriend the night before, then all PPI claims received the next day were going to be rejected!

PPI Claims RejectedPlease consider your options carefully before deciding on which course of action to take. The banks want you to claim yourself because they’ll get away with paying you less and will receive less complaints overall… saving them £billions. But DO NOT chose a PPI Claims Company that resorts to cold calling to obtain your business and do not pay anything upfront to start your claim.


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Record Number of Critical Illness Claims Rejected

One in ten critical illness claims, made by those suffering from a serious illness are turned down, according to a report by Money Mail. Their research suggests that the percentage of these claims being rejected by life insurance providers is at it’s highest level since 2007.

Insurers have been thoroughly probed regarding the matter, initially winning the battle against declined critical illness claims. However, the number crept up again to the tune of almost £80 million worth of claims… with many now turning to the Financial Ombudsman Service for help.

One case involves a 43-year-old woman, who was diagnosed with breast cancer; She had been turned down by her insurance provider because of some undisclosed medical condition.

Another case, involves mother of two, Caroline Quirk, who was found to be with cervical cancer who was also dismissed by her insurance provider, Scottish Provident, after not reaching the minimum month of giving up smoking – which is clearly an honest mistake.

Quirk was not reimbursed of the amount owed to her, but was given a meager £3,160 instead. After her claim, Scottish Provident terminated her policy.

The House of Lords is now raising a bill that would require insurance firms to specifically ask about any medical condition that would prevent policy holders from getting hold of their cover. They would also be obliged to pay a share of the claim if the holder made an honest mistake.

Other insurance firms like Royal London, Legal & General, and Aviva had been reported to have raised their dismissed claims, doubling last year’s number.

Meanwhile, the Association of British Insurers (ABI) has started a “non-disclosure” code that guarantees policy holders of the claim when they make an honest mistake.

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Banks Continue To Use Delaying Tactics To Put People Off PPI Claims

With all the negative press that the banks are receiving for the mis selling scandals – mis sold emdowments, mis sold PPI, mis sold mortgages, mis sold interest swaps, and mis sold investments (i’m sure this list will continue to grow)…. you’d think that they would be on their best behaviour when trying to resolve complaints.

Well… that was wishful thinking…

After failing in their bid to avoid repaying customers who were mis sold payment protection insurance, they collectively set aside £billions and agreed deadlines with the FSA for settling PPI claims.

But… they’re continuing to make it as difficult as possible for borrowers to get their money back by rejecting the PPI complaints and forcing borrowers to pursue their PPI claims via the Financial Ombudsman Services… who are already struggling to deal with the ridiculously large volume of PPI compensation claims.

Senior Claims Manager at PPI Refunds UK, Rick Power, has expressed his frustration at the banks “… we ask the banks to provide us with a copy of the original credit agreements and all statement relating to our clients account… we then use this information to calculate the total refund… however, many of the banks, are now writing to us to informing us that they have never received a Letter of Authority (LOA) from the client, or the signatures on the LOA do not match their records, or some other nonsense reason… only to contact our clients directly and make a partial settlement offer that is less than half of the value of the actual refund… it’s ridiculous, the FSA needs to review how the banks are dealing with PPI claims.”

The banks have already missed their deadline for settling PPI complaints that were placed on hold pending the outcome of the PPI Judicial Review without punishment and are now flouting the rules once more to see how much they can get away with before they are reprimanded… similar to a child stealing from the cookie jar!

Remember… these are the same banks that went to court saying “We know we made £billions from mis selling PPI… we just don’t want to pay it back”… and they are used to doing as they please while the FSA watches on. This is becoming a game of wits… where the banks are trying their best to get away with having to repay the money they say they have set aside for their customers…

Our advice is to tread carefully… do not accept a settlement offer unless you are absolutely certain that it includes the PPI premium charged, plus any interest paid, plus 8% interest per annum.

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Nationwide Offers PPI Alternative

Nationwide Building Society is the latest financial firm to offer an insurance alternative to payment protection insurance (PPI).

Known as the Lifestyle Protector, the product offers short-term protection to consumers in the event of unemployment, accident, or sickness. The maximum redundancy cover is £2,000. Customers are directly paid the benefits, which includes a £30,000 life cover.

Underwritten by Pinnacle Insurance, Policy holders are covered their mortgage, rental and utility bills as well as gym membership fees.

Customers are given the option to choose a waiting period of 14, 30, 60, 90, or 180 days and can stretch the amount when necessary.

Freshly launched last week, the Lifestyle Protector is offered under two terms; a six and 12-month term, and allows a maximum monthly benefit of £2,500 (an equivalent to 60% gross monthly earnings).

For one to be eligible to apply, He or She must be a resident of the UK, aged between 18 to 65, and must have worked, for a continuous term of six months, during the beginning of the policy, for the same employer, for at least 16 hours a week.

Lifestyle Protector offers similar services to the (notoriously mis-sold) product, but with more flexibility, says the building society. Unlike PPI, the product “tailors the benefits of customers according to what they need,” and will only be offered in Nationwide branches instead of independent financial advisors.

It can also be availed on advise and non-advise basis which will be made through telephone.

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