Brits turn a blind eye to tax relief on life insurance

Four out of five people are turning a blind eye to tax relief on life insurance according to a new survey.

The research, commissioned by moneysupermarket.com, shows just 21 per cent of those with traditional life insurance policies are prepared to consider a switch to Pension Term Assurance (PTA).

While over half (51 per cent) of all UK adults have some form of life insurance, only nine per cent say this is a PTA policy, with nearly a third (31 per cent) saying they would not even consider PTA and more still (41 per cent) admitting they do not know whether it is something they should consider.

Overall, around 17 million adults are certain they would not consider PTA, and the survey revealed widespread ignorance and misconceptions leading to these decisions. Twelve per cent of these believe they need a pension to take out PTA, while almost a quarter (23 per cent) of traditional policy-holders who would not consider making the switch admit they don’t know anything about PTA, meaning they could be paying more than they need to for life cover.

Emma Walker, protection manager at price comparison website moneysupermarket.com, said:“We believe that if providers and advisers explained this new product more clearly to customers, far more would consider switching to PTA to save money on their life insurance. It’s important to point out that the product features of PTA won’t suit everyone by any means, but for millions of taxpayers it could add up to hundreds of pounds of free money from the Government in terms of tax relief over the term of their policy.”

Emma continued:“Lack of awareness could be stopping them however, as our findings suggest that people are not properly made aware of the options available to them. Despite PTA coming into force seven months ago, there is still a huge number of people who know nothing about it, and many are under the impression they need a pension in order to qualify. The name alone is clearly putting some people off applying.”

Consumers do not need to have a pension to purchase a PTA policy and basic rate taxpayers can save up to 22 per cent tax relief while higher rate taxpayers can reclaim a further 18 per cent through their annual tax return. However, the research shows there is a need for education on the consumer front and advisers should ensure they fully explain the various options available to their clients.

The research highlights six per cent of adults have already opted for PTA and could be saving themselves 15.22 per cent by purchasing PTA instead of conventional term assurance. For example, a 35-year-old male non-smoker covered by 25 years for £100,000 of level term assurance from Legal & General would pay £10.05 per month. But if he chose a PTA policy with the same provider it would cost £8.52 for a basic rate tax payer – a 15.22 per cent saving. A higher rate tax payer can claim additional tax relief via their annual tax return, in this example the net cost would fall to £6.55, making a 34.83 per cent saving compared with the conventional term assurance policy.