You will probably have heard of the recent ruling by the European Court of Justice, which will now change the law on how some insurance and pension products are structured. The case will result in major changes in how certain forms of insurance and retirement annuities will be charged, and will affect you.
What the ECJ case was about
The ruling focused on the perceived sex discrimination that exists when using gender to determine the costs for insurance and pension incomes. Presently, insurers are permitted to use the differences between the sexes to charge different rates for their products according to the risks presented. This means that some forms of insurance are cheaper for women, and others for men. From the end of 2012 insurers will no longer be permitted to charge rates separately for men and women.
On the face of it this would seem fair. However, this does miss the point of insurance. Insurance is determined on the risk of an event happening. If you are not able to take an element of the risk into your calculation this might not be to the benefit of everyone.
Unfortunately, this might not result in you getting cheaper premiums on your insurance; in fact insurers might keep the prices the same for the more expensive groups and put up the price for the previously cheaper groups. Insurers are naturally cautious; if they don't know if a risk is male or female then they might assume the worst case scenario. There may be ways around this, perhaps with individual underwriting.
How will the ECJ ruling affect your insurance and pensions?
Car insurance
At the moment women get cheaper car insurance than men, since in general they drive more safely and have less expensive accidents. From 2013 the premiums will be the same for both sexes. The ruling probably means that your car insurance costs will increase if you are a woman.
Life Insurance
At the moment women get cheaper life insurance than men, since they live longer on average. From 2013 the premiums will be the same for both sexes. The ruling probably means that your life insurance costs will increase if you are a woman.
Income protection insurance
At the moment men get cheaper income protection insurance than women, since they are less likely to get sick than women on average. From 2013 the premiums will be the same for both sexes. The ruling probably means that your income protection insurance costs will increase if you are a man.
Critical illness insurance
At the moment men get cheaper critical illness insurance than women, since they are less likely to get sick than women on average. From 2013 the premiums will be the same for both sexes. The ruling probably means that your critical illness insurance costs will increase if you are a man.
Retirement income (annuities)
Since women live longer on average than men, they tend to receive lower retirement incomes with the same pension funds than men. This is because the same retirement fund must be spread out over a longer period, meaning the income is lower. After 2012 the incomes will need to be equalised, but the result might not be that women get a boost; perhaps men will lose out.
What does the ECJ ruling mean for your financial planning?
Well, you must shop around for the best deal. Do not assume that your current insurer or pension provider will offer you the best deal, since standard rates will probably suffer. It will become more important to compare products after 2012.
Dan Woodruff is a Certified Financial Planner based in Colchester, Essex, UK. He regularly writes articles on financial planning and investment management aimed at UK business owners and investors. Go to http://www.woodruff-fp.co.uk to find more content, or sign up for his free newsletter or financial planning blog.
Woodruff Financial Planning is authorised and regulated by the Financial Services Authority.
Article Source: http://EzineArticles.com/6024356
No comments:
Post a Comment