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In recent weeks, several life insurance companies have announced increases to the cost of their Life Insurance benefits from the 1st of July ranging from 2.5% to 15%!

Why the increases?
The government is changing the way life insurance companies are taxed from the 1st of July 2010, they have been receiving some taxation advantage in the past and these are no longer relevant to the way they do business. With those advantage removed, the extra tax life insurance companies will have to pay will have a significant impact on their profitability.

Each life insurance company is applying the impact of the tax changes to their business in a different way. Some are applying cost increases to new policies only – those that start after the 1st of July, some are also applying it to existing policies started within the last few years, some are applying the cost increases to life insurance benefits only, and some are spreading the cost across all of their insurance range (including Trauma, permanent Disablement and Income Protection benefits).

The tax changes only apply to new policies, but existing policies will gradually face the increased taxation over the next five years. It is possible that each company will increase their costs on all existing life insurance benefits over the next five years.

Can you avoid the cost increases?
Some companies offer guaranteed level premium options. If you act before the 1st of July you could change some or all of your existing life insurance benefits to a Level premium. Level premiums cost more today, but never increase over the term of your policy (e.g. to age 80), so if you keep the policy throughout the full term, Level premiums are far less expensive, and because the premium is guaranteed, you would avoid all price increases.

How can you avoid these price increases?
Now would be a good time to take a close look at what risk insurances you really need and how much you are paying for them. It could be that the life insurance component might be less expensive with a different insurer, or if you need more cover to consider level premiums for some cover, and increasing life cover before 1 July 2010! The best way to be sure you are getting the right insurance to meet your needs at the right price to meet your budget is to consult a financial adviser who deals with several insurance companies. Of course, it is important to act before the 1st of July to give yourself the widest range of options.