A recent survey by finance provider Premium Credit has found that 38% of the people they surveyed had cancelled insurance plans because they felt they couldn't afford the premiums. Even more worrying is that 56% of those that had cancelled, had done so in the last 12 months, citing rising premiums and a drop in income as the main reasons for the cancellations.
The research goes on to conclude that as many as 12 million people are considering cancelling one or more of their insurance policies over the coming 12 months.
In this article we look at what can be done to combat the rise in insurance cancellations and we focus on the two biggest contributors to the survey, car insurance and life insurance.
Can you cancel your car insurance cover?
It is illegal to drive a car on a public road without the correct insurance in place. Even if the car itself is insured, it is imperative that you are correctly insured to be driving the vehicle as you could still be penalised. The RAC provides a comprehensive guide to driving without insurance, including the punishments you should expect if you break the law.
Best way to save money on your car insurance
Rather than cancelling your car insurance, you can look at ways to reduce the cost of the premiums. We have provided 5 tips below on how you can cut the cost of your car insurance premiums:
- Shop around - Sounds simple enough but according to Money Supermarket, 14 million people allow their policies to auto-renew each year, costing an average of £40 extra per year
- Pay upfront - By opting to pay your car insurance upfront, you won't have to pay the costly interest that an insurance company applies when you opt to pay monthly. You'll typically save around 15%-20%
- Increase your excess - The premium you pay is based on the risk that you pose and the amount an insurer may have to pay out. By increasing the excess, you can reduce the risk (as the insurer is liable for less) and so the premium is often reduced as a result. Remember however, if you need to make a claim it is likely to cost you considerably more.
- Make sure you buy the right cover - Most insurance companies will offer three types of cover, ranging from basic to comprehensive. It is often assumed that the most basic cover (known as 'third party') is the cheapest form of car insurance, but this isn't always the case. Car insurance providers will sometimes reserve their very best offers for their fully comprehensive cover, so make sure you are aware of all of the options before you commit to buying. If you do opt for third party cover because it is the cheapest, remember that your car will not be covered in the event of a claim.
- Keep your car safe - An insurance provider will often offer a cheaper premium if you keep your car safe and out of harm's way. Try and park it in a garage if possible or alternatively keep it parked on a drive. You may be able to secure further reductions if you invest in additional security features such as alarms or trackers, but if these don't come as standard features on your car, then the cost to purchase them may outweigh the saving you make.
What happens when you cancel your life insurance policy?
If you decide to cancel your life insurance policy, your cover will cease and you will no longer be covered. Life insurance premiums are collected one month in advance and so you will likely be covered for 30 days from when your last premium was collected. As an example, if it was the 15th of the month when you cancelled your policy and your direct debit comes out on the 1st, then you will be covered up until the 31st of the month. As soon as the insurance company is unable to collect the payment, your life insurance effectively ceases and you are no longer covered.
Can you reinstate a cancelled life insurance policy?
It depends. An insurance company will usually allow you to reinstate a cancelled life insurance policy within 3 months of cancellation. Some insurance companies will extend this to 4 - 6 months but don't leave it to chance. While you will not be covered while the premiums remain unpaid, you still have the chance to put things right and catch up. If you think you have cancelled a life insurance policy in error get in touch with the insurance company as soon as you can. Be aware however that you will be expected to make up the missed premiums.
If you are in good health, it may be cheaper to get a new quote, rather than paying the missed premiums. If you have cancelled a life insurance policy and want to find out if buying a new plan would be cheaper, then we would recommend you speak to an independent specialist as they will be able to search the whole market to find the best quotes for your circumstances. Check out our article Best and cheapest life insurance in the UK.
Best way to save money on your life insurance
While you are not required by law to have life insurance, it is incredibly important insurance to have, as it can ensure that a lump sum is paid out to provide financial assistance to your family should the worse happen. This is especially important if you have a large loan such as a mortgage or if you have a family that depends on your income.
We recently wrote an article 'How can I reduce my life insurance premiums?' and we recommend you read that article in full as it gives detailed information on each tip and reveals how to get the cheapest life insurance quotes. We have summarised the 5 tips below:
- Don't over-insure yourself - Only buy what you need, if you over insure it will come at a cost
- Buy the right cover - Different types of policy are more expensive. Do you need a level policy or would it be better for the policy to reduce as your mortgage reduces?
- Get healthy - The healthier you are, the cheaper your policy will be
- Buy now - The older you are the more expensive your cover will be, so if you know you will need cover, get it now
- Shop around - An experienced life insurance specialist will have access to the best premiums and have the knowledge to put you in touch with the best insurer. Read our "How can I reduce my life insurance premiums?" to find out how to get the cheapest life insurance quotes.
For more information about life insurance, I recommend you read our article Best and cheapest life insurance in the UK as it explains who should get life insurance, how much life insurance you need and how much life insurance costs.
Rather than cancel your insurance, cut down on non-essentials instead
If you are struggling with your finances then rather than cancelling your insurance policies, it may be better to take a deeper look into your finances as you may be wasting money on subscriptions you don't need or spending more than you realised in other areas. Our article How to manage your finances and what you should focus on first walks you through the steps you should take to start managing your finances better.
Our tips include downloading one of the many free budgeting apps as well as taking Damien's free Money MOT, a simple tool that will give you a detailed breakdown of how your finances shape in just two minutes. The tool gives you a grade (from A to E) and will even let you know how you compare to the thousands of others that have taken the MOT. You can then choose to receive a free email action plan to improve your finances.
