It’s essential to clarify that Loyalty Tax has absolutely no affiliation with the ATO (Australian Taxation Office). Instead, Loyalty Tax represents a subtle and somewhat deceptive tactic employed by companies to extract additional money from their customers. The good news is that Loyalty Tax can be sidestepped.
Some of the most reputable and well-established companies in Australia utilize Loyalty Tax against their longest-serving customers. Whether in the realms of energy, mobile services, broadband, mortgages, savings accounts, credit cards, or insurance, it’s increasingly common for providers to quietly increase premiums over time as a reward for customer loyalty.
In simple terms, service providers attract new customers with enticing deals upon initial sign-up. However, as time progresses, once these plans or policies renew or after a specific period elapses, premiums often experience significant hikes.
Staying vigilant and proactive about identifying these hidden Loyalty Taxes can result in substantial annual savings, potentially amounting to hundreds or even thousands of dollars.
Insurance providers, in particular, tend to implement these increases progressively over consecutive years. In many cases, renewal notices from insurance providers historically failed to display the previous year’s premium for easy comparison. Many of us may have simply glanced past the statement that says, “You don’t have to do anything!” on a renewal policy, assuming that everything was above board. After all, these are established and reputable businesses, right? Unfortunately, this assumption can be far from accurate.
Effectively, premium increases for loyal clients end up covering the attractive deals offered to new clients. It’s a profitable cycle for providers, unless we, as consumers, intervene.
While the insurance sector has faced the most scrutiny regarding this practice, an increasing number of service providers in various industries capitalize on the tendency of many customers to be “set and forget” individuals. Changing providers can often seem time-consuming or confusing, and it can be challenging to keep track of when a plan or subscription transitions into a new one. This phenomenon has earned Loyalty Tax its alternative moniker: the “Lazy Tax.”
So, what’s the solution to Loyalty Tax? A crucial step was taken in the right direction with legislative changes effective from July 1, 2021. These changes require insurance companies to include the previous year’s premium on all renewal notices. The objective is to enhance client awareness regarding premium increases and their magnitude.
Loyalty Tax is a widespread issue, with over 10 million Australian households affected by insurance-related Loyalty Tax, resulting in a cost of approximately $3.6 billion for policyholders, according to Allan Fels, the NSW Emergency Services Levy Insurance Monitor.
To address Loyalty Tax, it’s recommended to conduct a financial health check. Examine all existing plans, policies, mortgages, credit cards, and subscriptions to identify any changes. Scrutinize energy bills and compare them to rates available online. Similarly, review savings accounts and mortgages for potential cost savings. It’s a quick process that can yield significant benefits.
Following this, take note of what new clients are being offered by your providers and explore the deals offered by competitors. Contact your existing providers and inform them if you believe you’re paying too much. If they don’t offer you a favorable deal, consider switching to another provider.
Repeat this process annually or at the end of any plan or subscription term. Set reminders in your calendar to dedicate an hour or two to save money. The effort is well worth the financial rewards.
Additional tips for tackling Loyalty Tax:
Make polite and friendly inquiries when seeking a better plan or rate.
Remember that the person on the other end of the call isn’t responsible for the premium increases, so maintain a constructive and courteous tone.