The government’s recent decision in the emergency budget to raise the lower rate of IPT (insurance premium tax) by 1% to 6% from 4th January 2011 has caused more than a few raised eyebrows in the insurance industry. Some professionals are concerned about the effect this may have on people taking out home insurance, considering it’s estimated that 1 in 4 households already forgo contents insurance.
The deficit
Given the current national deficit, comparatively few people seem to be questioning the need for some forms of belt-tightening going forward or that the government needs to raise more income.
However, some are pointing out that insurance increases must be seen in the context of VAT also increasing to 20%.
The danger is that the two together may have a disproportionate effect on people that have traditionally taken a mature and responsible attitude towards protecting themselves through insurance.
The concern
The concern arises from two considerations:
- the VAT increase will push up prices for things such as renovations and maintenance, meaning that second home owners will have less money available;
- the overall increase in the cost of insurance may discourage property owners from taking out adequate insurance or force them to choose a policy based on price alone.
Anything that nudges owners towards thinking they can do without insurance could have serious consequences.
The value of insurance
The entire point of second home insurance is to protect people from the unpredictable side of life such as burglary, fire, natural disaster etc.
Being under-insured may be positively dangerous as the property is a major asset and if it sustains damage, the effects on the owner may be financially disastrous.
Insurers are hoping that owners will realise that the safeguards offered by suitable insurance are extremely important and that the extra few pounds per annum (on average) will not be seen as being prohibitive.
Even so, for those owners needing to watch every penny due to increased holiday home running costs, this rise isn’t good news.
Choosing insurance because it’s the cheapest
Perhaps the overriding message to come out of this for holiday home owners is that it is becoming ever more important to be sure that the insurance they have is giving them the maximum cover they need and at a price which makes sense.
Choosing a policy just because it’s the cheapest can be false economy if the cover is limited. It’s always advisable to seek a comprehensive insurance policy and then take steps to reduce the premium. These include increasing the excess, improving security and avoiding monthly premiums that incur interest.
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- Government consults on furnished holiday lettings tax rules
