Will Cost of Living Mean Consumers Start Cancelling Cover?

The latest Office for National Statistics (ONS) data shows UK inflation was 7% in the year to March 2022, driven by increases in energy and fuel prices. What this effectively means is that something that cost you £10 a year ago will cost you £10.70 today, says research from I’m Insured, although as fuel now costs about 80% more than last year and many food items have risen by 50%, the real inflation rate is way above the UK govt figures.

The Actuarial Post reports that this increase in inflation means UK households must collectively find an extra £54.4 billion a year to maintain their standard of living compared to 12 months ago.

What does this mean? It could lead to people cancelling various insurance plans as they look to save money.

Protection is one area where many people seem to be considering making savings. New research from insurer Royal London has found that 1 in 10 people with a protection policy are reviewing their premiums as a result of the current cost of living crisis. Their research revealed that 11% of UK adults are thinking about reducing or stopping their premiums to cut back on expenses. Nearly 2 in 3 people (63%) are planning to realign their finances, with almost 1 in 3 (31%) paying less into savings.

While making changes to your protection may enable you to make savings in the short term, reducing the amount of cover, or stopping your payments entirely, could mean you won’t have the essential protection you need in the future.

Gregor Sked, protection development and technical manager at Royal London, says that as household expenditure rises thanks to spiralling fuel and energy bills, and recent National Insurance increases, many people are faced with difficult choices about their finances.

He adds that many people are at risk of compromising their financial resilience by making “a decision about their protection insurance that they may regret further down the line.”

REVIEW YOUR OPTIONS

I’m Insured has some timely advice for those who are thinking of making radical budget cuts;

If you have any existing life insurance or other protection, it’s possible that you’re paying more than you need to for your cover. For example, you may have taken out your life insurance alongside your mortgage, perhaps through your bank or building society, or through an estate agency adviser.

Many of these advisers are either tied to one or a limited number of insurers – and can’t scour the market for deals – or charge something called “loaded premiums” where they receive an additional commission for selling the insurance. Consequently, you may find that it’s cheaper to take out brand-new cover and reduce your monthly premium. Speak to one of our experts to see if this is possible.

Always remember never to cancel any existing protection until any new policy you take out is in force.