Increased energy costs as well as interest rate hikes combined with inflationary pressures on household goods and bills are forcing many to find ways to save money where they can. Households may consider cancelling or reducing the benefits within their personal insurance policies such as life insurance, critical illness insurance and income protection insurance with a view to replacing them when things get better.
In this article, we explain how to minimise the cost of your personal insurance policies and what you should do if you have no choice but to cancel them.
How to save money on life and illness insurance
Personal insurance is important as it can help to lessen the financial burden if you become unable to work or pass away, however, if you are struggling to manage your monthly bills you may be looking at ways to cut back. Below, we share how you can save on your personal insurance policies.
Review the amount of cover
It can be valuable to know that critical illness insurance costs roughly five times what life insurance costs. With good reason though, as you're much more likely to claim for a serious illness than for death. Reviewing and reducing the amount of critical illness cover you have can help to save money and reducing your critical illness cover will save you more money than reducing the equivalent value of life insurance.
Are you covered by your employer?
It may be that you are paying for personal insurance while your employer provides similar benefits as part of your employment. Some employers provide death-in-service benefits that pay out if you die and there may even be some critical illness cover that could pay out if you're diagnosed with cancer or have a heart attack. Sick pay varies a lot so it is always worth checking your employer's sickness policy to see how much you would be paid if you could not work and for how long.
Take a look at your employer benefits and adjust your personal insurance accordingly as you could save money by requesting a cover reduction with your insurance provider or by extending the deferred period so your insurance only pays out when your employer stops paying you.
Have you given up smoking?
If you were a smoker when you bought your life insurance or any other personal insurance policy, you would have paid smoker rates. These are roughly twice the rates that a non-smoker is charged. So, if you have not used any nicotine or tobacco products in the last 12 months, speak to a life insurance broker to switch your policy to non-smoker rates and you may be able to do this without having to reapply for your cover.
Has your health improved?
Personal insurance policies can cost more if you have a health condition or if you've recently recovered from one. Insurers also increase premiums for those who are overweight. If your health has improved or you have lost weight having previously been overweight, chances are you could save money on life insurance, critical illness cover and sick pay insurance.
Contact your insurance provider or the broker who arranged your cover to discuss the change to your health and you may be able to present evidence of the change in your health and receive a reduction in the price of your insurance as a result.
Decline annual increases
Personal insurance policies usually remain the same cost each year as they are not annually renewable. However, some policies are index-linked which means that the cover amount increases in line with inflation each year. The premium that you pay will increase too and this may push your costs beyond what you can afford. If your policy is inflation-linked or index-linked, the cover amount and the price that you pay will increase each year but you can simply decline your annual increase to prevent the price increase.
Share the cover amount with a partner
If you have joint life insurance to cover a mortgage, chances are that you've covered yourselves for the whole mortgage amount should either of you die. While it may be helpful if the whole mortgage balance was paid off if either person died, consider covering part of the mortgage, each based on who could afford what if the other died before the mortgage was repaid.
Calculate how much of the mortgage balance you could afford to keep paying for and cover yourself for the remainder only. Having individual covers that add up to the whole amount of the mortgage balance instead of the whole balance jointly should reduce how much you pay.
Things to consider before reducing or cancelling personal insurance
Before you cancel any type of insurance, you should consider the impact this may have. For example:
- Your dependents may suffer financial hardship if you die or suffer illness and have no insurance in place to provide for them
- You may find it difficult and/or more expensive to reinstate your insurance in the future as you get older and possibly suffer a deterioration in health
While you may feel that you have no choice but to cancel your personal insurance, do explore other cost-cutting measures before you do so. Death and illness are unpredictable and could leave your family in a worse financial situation than you currently face.
How to cancel or reduce personal insurance
Cancelling your personal insurance plan is simple as you just need to cancel your direct debit with your bank and inform the insurance company that you no longer want the insurance. If you change your mind after doing so, you'll have between 1 to 3 months to reinstate before it fully lapses.
If you plan to reduce or alter your personal insurance, speak with a personal insurance specialist*. The advisers will be able to review the covers that you have in place and talk you through the optimum ways in which to reduce your insurance costs. It can be extremely helpful to review which changes will have the most impact on what you pay without leaving you financially vulnerable.
What to do if you cannot afford personal insurance
If you are struggling to afford your monthly repayments you may be able to contact your insurance provider to see if they can offer you a temporary solution until you can restart your insurance premiums. Speaking to the provider is advisable before missing any payments as this can lead to further financial problems.
If you are struggling with the cost of living crisis and are feeling overwhelmed by your finances there are a number of organisations working hard to ensure that people are supported. The organisations can provide mental, emotional and practical suggestions to help you navigate the issues you face. We have listed some below:
- Government support with cost of living
- Citizens Advice - help with cost of living
- Turn2Us support with cost of living
- Step Change - debt assistance
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