How VAT affects your insurance spending
VAT should have minimal effects on how your insurance is bought and delivered.
As you are aware, value-added tax (VAT) implemented in the UAE on January 1. This means, as a consumer, the majority of your purchases have five per cent added to the price.
Towards the end of the last year, the Federal Tax Authority put out a pretty comprehensive document that detailed the exclusion of certain products and services from VAT. Education, up to the university level, escaped the tax, as medical services and residential property transactions. This means that, for your really big expenses, you don't see much of a change.
But for everything else, you have to pay the five per cent on top. For instance, fuel and new cars are subject to VAT. And, inevitably insurance are being sold with five per cent VAT on top of it, too.
But on the insurance side, it's actually a little more complicated than you might think. Yes, you pay VAT on top of the cost of your premium, but other things are going on, too.
So, let's assume that, if you're buying a fully comprehensive policy for a cheap SUV. The minimum you can pay for that policy is Dh2,000. Now you have to pay an extra five per cent VAT on top. This means you're Dh2,100 all-in.
Now, that's not too much of a bitter pill to swallow. But what's interesting to us is the level of cover you're getting in this post-VAT world.
Say you are buying a new car, and, to keep things simple, its showroom price is Dh100,000. That means you will pay Dh100,000 for the car, plus Dh5,000 in VAT. That will be properly separated on the invoice when you pay, as that money will be put aside to go to the Federal Tax Authority.
But what happens when you get an insurance policy for that car? Will the policy value the car at Dh100,000 (the showroom price), or will it value the car at Dh105,000 (the showroom price plus VAT)?
To be honest, it's not clear right now. But one thing's for sure - if your policy does value the car at its showroom price, and disregards the VAT, you're out of pocket for that five per cent if you write the car off.
Now, it's likely you'll be able to get around this by simply taking out an insurance policy that values the car at Dh105,000. Some insurers may not go for it, but others will, and you'll simply have to pay a little bit extra for that additional cover. The point to all of this, though, is that, now that VAT is here, it's going to be even more important to look at a range of insurance policies in detail before signing on the dotted line. Obviously, a comparison site can help you with this.
With travel and home insurance, things should be a little easier. When it comes to travel insurance, you're buying a pretty standard, one-size-fits-all policy, with very little information required to be given a quote. Sure, there may be price variations based on your age, or where you're going, but VAT has no bearing on that, so you can expect to simply pay five per cent over and above what you were paying in 2017.
Home insurance, meanwhile, asks you to declare the value of your belongings. So, say you've got a TV at home that cost Dh2,100 after VAT, you can simply declare you have a TV worth Dh2,100 at home. For some people, this will mean paying for a more comprehensive policy, but for the majority, we reckon VAT won't have much of an effect on how home insurance is issued. Again, you can mostly expect to just pay five per cent extra for a policy.
And when it comes to health insurance, you probably won't see much change at all. Quite apart from the fact that most people in the UAE have health insurance provided by their employers, key healthcare services will be either exempt from VAT or zero-rated. Where VAT does apply, the small increases will likely be accommodated by the limits provided by your health insurance policy anyway, so there's nothing to worry about there.
VAT is a big and positive step for the UAE. And it should have minimal effects on how your insurance is bought and delivered. However, because of the slight changes involved, it's always best to compare the different options available in the market to ensure you're getting the right coverage.
The writer is CEO of yallacompare. Views expressed are his own and do not reflect the newspaper's policy.