Think twice: Why cancelling your financial protection during the current cost of living crisis could be a bad idea
Centuries ago, Benjamin Franklin announced 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. However, with the rising cost of living 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 65% 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 crisis with no financial support in place.
Life insurance means your family will not face financial hardship
Keeping your life insurance policy can ensure your family benefit from financial support if the worst happens.
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.
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 £99.35 a week in 2022/23, it may not 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 grant you the ability to work again. As an example, 78% of Aviva customers who had rehabilitation support returned to work.
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 the following: Heart attack / Stroke / Cancer / 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 could be essential to preserving your financial wellbeing.
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.
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.
Your pension could be your “secret weapon” of protection
According to Pensions Age, 86% of savers are not on track to achieve their retirement expectations.
This serves as a caution that foregoing pension contributions could leave you short when it comes to your retirement funds.
So, pausing or cancelling your contributions now could have a negative effect on the size of your pension pot when you come to retire. This may leave you having to compromise on your later-life plans.
Discussing your pension with us could help to prevent overspending or under budgeting that may affect the funds you’d like use for your retirement.
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 discuss your needs.
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.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028).
The tax implications of pension withdrawals will be based on your individual circumstances.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Tax concessions are not guaranteed and may change in the future.
Tax free means the investor pays no tax.
Approved by The Openwork Partnership on 14.02.2023
