Members of the Armed Forces are facing a steep rise in personal injury insurance premiums because of the significant increase in combat casualties in Iraq and Afghanistan.

The Ministry of Defence said that it was in discussion with the main company that provides a special private scheme for the Armed Forces but that there had been no decision yet to increase premiums.

An MoD letter leaked to The Sunday Times indicated that the insurance premium was to be doubled to nearly £1,000 a year, and to rise even further – by 160 per cent – in some cases.

About 58,000 military personnel have taken out private insurance under a scheme called Pax, which has been offered by AIG Europe (UK) since 1989.

Troops going to Iraq or Afghanistan have been encouraged to take out the extra insurance because the compensation paid for injuries by the Government scheme is limited. Last month Des Browne, the Defence Secretary, announced a change in the scheme so that personnel who suffered multiple wounds would be assessed for each injury, not just the worst three as under the previous arrangement.

However, the maximum payout was still £285,000, although injured soldiers discharged from the Armed Forces also receive a pension based on their period of service. More than 300 service personnel have been seriously injured in Iraq and Afghanistan.

The suggestion that the private insurers were considering raising the premiums for personnel with families to just under £1,000 provoked anger. Liam Fox, the Shadow Defence Secretary, said that it was a further breach of the military covenant between troops and the State. “They are being asked to put their lives at risk and to ask them to pay to do it is an insult.”

Nick Harvey, defence spokesman for the Liberal Democrats, said: “This state of affairs is as startling as it is shameful.”

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