Cancelling your financial protection during the current cost of living crisis could be a bad idea (MPGI)

While the cost of living crisis may be putting a strain on your finances, read why cancelling your financial protection could be a dangerous way to save money

Centuries ago, Benjamin Franklin said that...

“By failing to prepare you are preparing to fail.”

This is especially true when it comes to ensuring your personal finances are protected from the rainiest of days. If the rising cost of living is likely putting pressure on your spending, you may be considering cancelling your cover, even when this could leave you more vulnerable than before. Read on to discover some of the reasons you should consider prioritising your financial protection over other cost of living worries.

Rising costs should highlight the necessity of financial protection

A recent survey by Which? has revealed that 59%of households have resorted to cutting back on essentials, selling items, or dipping into savings to pay their rapidly rising bills. Financial protection products such as life insurance, income protection, and critical illness cover are sometimes the first things that people decide to cancel when things are tight. However, without financial protection, one unexpected event or serious illness could plunge you into having to deal with a real crisis with no financial support in place.

If you were to die

Keeping your life insurance policy can ensure your family benefit from financial support if you were to die. It’s often said who are we to determine what the worst event is for a client, they will all be different. For some their worst may be permanent injury or a critical illness.

Without protection in place, your family could perhaps no longer afford their regular outgoings, leaving them in a difficult financial position at what will already be a stressful time. Cancelling your policy could jeopardise the financial security of your loved ones. If you’re the main breadwinner, without your contribution to the household your family may struggle to meet their regular financial commitments.

You could receive cover during a critical illness

If you cancel your critical illness cover to save money, you could find yourself out of pocket if you’re diagnosed with a serious condition. You may have to take an extended period off work on a significantly reduced income. Critical illness provides a lump sum if you are diagnosed with a specified illness such as Heart attack, Stroke, Cancer or Multiple Sclerosis. Conditions may vary between providers.

While it’s unpleasant to think about, you should consider your own circumstances and whether you might be vulnerable if you cancel. Having protection to offset unexpected healthcare expenses, mortgage costs and everyday bills could be essential to preserving your financial wellbeing.

Income protection could support you while you’re unable to work

Injury, illness, or an accident could prevent you from working and earning your living at any time, making it hard to meet everyday expenses. Even if you receive Statutory Sick Pay (SSP), paid at £109.40 a week in 2023, it is unlikely to be enough to cover your usual expenses and could force you (and your family) to adapt your lifestyle while you recover.

Moreover, if you’re self-employed, you aren’t eligible for SSP. Income protection could save you from such stress. If illness or injury prevent you from working, you can expect to receive up to around 60% of your wages. Just as important as a payout, an income protection plan could give you access to rehabilitation services that can help you get better and return to work more quickly. As an example, 82% of Aviva customers who had rehabilitation support returned to work.

Potential consequences

If you cancel your protection now with the intention of taking out cover again when your finances permit, you may find the premiums are significantly higher – especially if your health has deteriorated since you took out your original protection. You may also find there are exclusions based on pre-existing conditions. The short-term savings often may not be worth the potential long-term vulnerability you cause yourself.

You may not feel you need insurance in all the areas discussed here.

For example, some employee benefit packages include life insurance, so it’s worth checking to see if this is something you already have through your work. The type and level of protection that is most suited to you will depend on your circumstances. We can help you decide what would provide you and your family with the most benefit and help you understand which policy is right for you, too.

Life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Get in touch

We can help to assess your financial wellbeing and assist in finding the right protection for you. This can help to safeguard your finances when confronted with unexpected circumstances. Please get in touch to arrange a time to chat.

Approved by The Openwork Partnership on 16.10.2023