IPT05400 - Calculating the value of the premium: the meaning of ‘facility to pay in instalments’

In the past many insurers asked for premiums to be paid, in full, at the time the contract of insurance was taken out. As premiums have risen some policyholders have found it more difficult to pay the whole premium at the inception of the policy. This may have affected the take up of insurance, so to avoid this customers have been offered the facility to pay premiums in instalments. Where an additional charge is made for this facility it is sometimes referred to as interest.

Where the payment for this facility is received by the insurer under the contract of insurance, it will be treated as part of the premium for IPT purposes. If this facility is offered under a separate contract, for example under a contract regulated by the Consumer Credit Act, any payment received for credit is not part of the premium and is not liable to IPT. (See IPT05580).