Tax changes set to lift life insurance premiums 25%, says ISA (Update 1)

New tax rules for life insurers are set to increase premiums by up to 25% from July, the Investment Savings and Insurance Association has warned. (Update 1 adds comments from AMP that it has already increased prices) Last year the government passed legislation called the Taxation (International Taxation, Life Insurance, and Remedial Matters) Bill (Page 6) that removed a tax exemption being received by life insurers. This change reflected a change in the structure of the life insurance industry. During the last 20 years many life insurers have been transformed from mutuals, who were structured to return profits to policy holders in the form of lower dividends, into being 'for profit' corporates. The new law treats life insurance income to reflect the profit component now being generated. Investment Savings and Insurance Association chief executive Vance Arkinstall told interest.co.nz that life insurance was once sold in combination with savings policies, but has been increasingly sold separately since the late 1990s. "There used to be a combination of insurance cover and investment. In that time, individuals supported investment and savings from life insurance. People prefer to do their savings separately, with a huge growth over the part of risk only (life insurance) products," Arkinstall said. "The impact is most life insurers have to successfully consider passing on the impact of the tax change by way of increased payments. It is likely to be an impact that is 15-25% (extra) premiums," he said. Once the bill was implemented from 1 July 2010, there would be a 5 year period where companies would have time to either absorb the extra tax costs or pass it on to customers, Arkinstall said. AMP general manager of marketing and distribution Blair Vernon said the changes will had already increased its premiums in 2008.