Cost of insurance set to soar following European court ruling
Saturday 20 October 2012
Premiums on protection insurance are set to soar. The European Court of Justice has ruled that from 21 December insurers can no longer charge different premiums for men and women, following a challenge by the Belgian consumer group Test-Achats, which argued that pricing by gender was discriminatory.
Insurers take into account various factors when setting premiums, including age, previous health problems, occupation and – perhaps the most important – gender. They argue that using gender in the underwriting process provides an accurate reflection of the real cost of insuring an individual.
Furthermore, from 1 January, insurers will be subject to a new tax regime, which will put further pressure on premiums.
These factors combined will result in premium increases for most people if they delay taking out cover. Those with existing policies will be unaffected.
"People can be forgiven for thinking that this is one big marketing campaign by the insurance industry, but it isn't. It is genuinely a call to action, because the prices available now will, for many people, be higher after 21 December," says Peter Chadborn, managing partner of the independent financial adviser Plan Money.
Insurance experts say women will be hit the hardest in most cases, although males face premium rises too.
On average, women pay 17 per cent less than men for life insurance, which pays out a lump sum if you die. Women have a longer life expectancy and are therefore less likely to claim during the term of the policy.
Experts predict the ban on gender-based pricing could cause female life-insurance premiums to soar by 25 per cent. Males, too, are unlikely to escape price rises. So far, insurers have been keeping tight-lipped about how much they expect to charge new customers in the early part of next year, but see increases of up to 5 per cent.
A 45-year-old woman looking to buy £150,000 life cover over 20 years will currently pay around £20 a month with the insurer LV=. If insurance experts are right, the same woman would end up paying £1,000 more over the duration of the policy if she takes it out in January. A male taking out the same policy could expect to pay up to £200 more over 20 years if he took out the cover next year.
So by taking out cover before the 21 December deadline, you could save yourself hundreds or even thousands of pounds over the life of the policy.
Ray Black, of the life and protection comparison site money-minder.com, says: "If women know that in the next few months, or indeed in 2013, they are going to buy some life cover, they should consider buying at least some cover early in order to lock in the lower premiums."
It is not only life insurance that will become more expensive. Both sexes will also have to pay more for critical illness cover, a type of insurance policy which pays out a lump sum if you are diagnosed with a serious illness and is sold alongside life insurance in many cases. Experts say men are likely to pay around 6 per cent more each month for critical illness cover and women around 16 per cent more after 21 December.
But things are not all bad for women. While they will be hit hardest when taking out life and critical illness, they are set to pay a lot less for income-protection insurance, which pays out a tax-free monthly income – normally up to 75 per cent of a person's salary – if the policyholder is unable to work due to sickness or accident.
Currently, women pay up to 65 per cent more, on average, for income-protection insurance because statistically they are more likely to claim. However, a person's age, job and health record can influence the price hugely.
But after 21 December, female income-protection premiums are expected to fall by up to 28 per cent, while male premiums are likely to increase by around 20 per cent.
At the moment, a 30-year-old, non-smoking female looking for an income-protection policy paying £1,500 a month up to the age of 65 will pay around £34 a month with the insurer Bright Grey. The male equivalent is £20.
If experts are right, both will end up paying around £23 to £24 a month if the policy is taken out next year. This means the man would be roughly £1,600 worse off over the 35-year policy if he took it out after 21 December, but the woman would save more than £4,200.
But while it might be tempting for women to wait until prices for income-protection cover come down, it could prove risky.
Kevin Carr, chief executive of the Protection Review, a body set up to raise awareness of the benefits of taking out protection, says: "Even though income-protection rates for females could fall, they shouldn't delay buying cover as their circumstances could change. A relatively minor change in someone's health – like developing diabetes, high blood pressure or a bad back – could make the cover more expensive or even discourage some insurers from offering them cover at all.
"If you are a woman and thinking of taking out income-protection insurance, the best thing to do is take out cover now and then switch to a cheaper policy when rates fall."
In most cases, insurers can determine the price of the policy and offer the customer cover within a matter of days. However, if for some reason the insurer needs further medical evidence or a GP report, the process could take weeks or even months.
Furthermore, some insurers have decided to stop using gender to determine the price of premiums before the 21 December deadline. LV=, for example, has decided to make the switch on 1 December, meaning that consumers need to get their applications in before this date to secure cheaper premiums. PruProtect plans to make the switch for its whole-of-life product – a type of life cover which has no set term length – on 3 November, while Zurich will begin to switch on 10 December.
If you want to make sure you are not caught out by increased prices it is a good idea to speak to a financial adviser as soon as possible, as they will know exactly when each insurer plans to switch to so-called "gender neutral" premiums.
David Hollingworth, of the mortgage and insurance broker London & Country, says: "Although some customers could find that they are accepted instantly on standard terms others could find the process lengthier. If there is a need to go for a GP report to further understand the customer's medical history then there could be delays. Although there may be leeway to start the cover after the deadline, many providers will require full underwriting to have been completed by then.
"If it gets to the wire and the required documentation is not supplied it could result in the cost literally rising overnight because the deadline is missed."
However, while price is an important factor in choosing protection insurance, it is not everything. Although most insurers offer life, critical illness and income-protection insurance, policies can vary, even if they are priced similarly.
Further, protection products can be complicated – especially income protection and critical illness – so it is best to get advice from an independent financial adviser or a mortgage broker specialising in protection to ensure the product you buy is best for your circumstances.
"Consumers should still take the time to ensure they have the most appropriate cover for their needs, which for a product such as income protection may be a more complex decision than when buying straightforward term life cover. Rushing to secure a lower premium but for the wrong policy may be a move you later regret," says Mr Black.
"Regardless of any regulatory changes, it usually makes sense to take out protection insurance sooner rather than later. The cost of life insurance increases with age, so by taking out cover now rather than waiting a few years, individuals can expect to pay lower monthly premiums," says Louise Colley, head of protection sales and marketing at Aviva, the insurer.
What different types of cover offer
This type of cover provides a pay-out to your dependents in the event of your death. There are different types of life cover, some which last the whole of a person's life, which can be expensive, and term insurance, which will pay out if you die within the term of the policy. Most people can apply for life insurance but it is normally taken out by those with a family wanting to ensure the mortgage can be repaid on their death.
Peace of mind that the family will be looked after if you die
Pay-out is generally quick
Can be very cheap if you are healthy
Can be costly if you have bad health or a dangerous hobby
With term insurance, you could outlive your policy
This product pays a lump sum if you are diagnosed with a serious illness. In the majority of cases, this type of cover is sold alongside life insurance.
This type of cover can protect yourself and your family should you be diagnosed with a serious illness
Some policies will give a partial payout if one of your children becomes critically ill
Can be expensive
Not all conditions are covered, so check the small print
If you have a condition before applying, it may not be covered
If you cannot work through illness or injury, you receive a portion of your salary tax-free. Anyone of working age can apply.
Good for the self-employed
Handy if your family relies on your wage alone
This type of cover does not cover redundancy
It can be expensive, depending on what job you have
Board creates magnetic field to achieve lift
Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets
George Lucas criticises the major Hollywood film studios
Film follows park rangers in the Congo
Does Chris Grayling realise what a vague concept he is dealing with?
Parties threaten resort's image as a family destination
Mark Dampier: Woodford’s young companies could be the stars of the future
'Hundreds of thousands' could be hit by second HMRC tax blunder
Weekly Money: Round-up of the personal finance stories you may have missed 13-17 October
The 10 Best money-saving sites
Bank-beating exchange rates on your international payments
- 1 Jack the Ripper: Scientist who claims to have identified notorious killer has 'made serious DNA error'
- 2 Banksy arrest hoax: Internet duped by fake report claiming street artist's identity has been revealed
- 3 Drink alcohol and eat meat to improve male fertility - but cut down on coffee, studies suggest
- 4 Former East 17 frontman Brian Harvey turns up at Downing Street and 'demands to speak to Prime Minister'
- 5 The inventor of the Facebook 'like' button says he never made a 'dislike' button because he feared the 'unfortunate consequences'
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
Amal Alamuddin calls for the return of the Elgin Marbles from Britain: 'Injustice has persisted for too long'
London bus driver 'kicks gay couple off for kissing'
Lord Freud: Tory welfare minister apologises after saying disabled people are 'not worth’ the minimum wage
iJobs Money & Business
£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...
£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...
£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village