In recent months you won’t have missed the headlines that households in the UK are experiencing a cost of living crisis.
The Office for National Statistics (ONS) report that inflation reached a rate of 9.1% in the year to May 2022 – its highest level for 40 years. In simple terms, this means that goods and services that cost £100 a year ago will cost £109.10 today.
It’s likely that you’ve seen the prices of food, fuel and your utilities rise sharply in the last few weeks. So, naturally, you may be concerned about your household expenditure, and you might be looking for ways you can make savings.
Read on to find out more about rising prices, and why cancelling your financial protection to make a short-term saving could cost you dearly in the long term.
Prices have increased sharply, even in just the last two years
The latest ONS survey about household finances shows that households across the country are feeling the effect of rising prices.
The report found that around 9 in 10 (91%) adults say their cost of living had risen over the past month while almost half (46%) said they had to spend more than usual to get what they normally buy.
The most common reasons given by adults who reported their cost of living had increased were an increase in the price of food shopping (93%), a rise in gas or electricity bills (86%) or the soaring price of fuel (80%).
Research from interactive investor paints a sobering picture of how much prices have risen – even just in the last two years. Since January 2020 the price of:
- Gas has risen by 233.5%
- Wheat has risen by 111.2%
- Corn has risen by 103.7%
- Oil has risen by 77%
- Coffee has risen by 57%
- Sugar has risen by 48.9%
- Butter has risen by 44.5%.
As a result of these price rises, households are beginning to change their spending behaviour. The ONS reports that 3 in 5 people were spending less on non-essentials, and half were using less energy at home. 45% of people are cutting back on non-essential journeys to save petrol or diesel.
If you’re thinking of cutting back on your household spending, you may be looking through your direct debits and wondering what you can do without.
If your financial protection – your life cover, income protection, or Critical Illness cover – is something you’re considering cancelling, read on to find out why you shouldn’t consider it “non-essential” spending.
Your protection is there to support you when the unexpected happens
During periods of financial uncertainty, you might see your financial protection as a luxury. While it’s there to provide reassurance and peace of mind, you might consider it an expense that you could save if more pressing financial needs emerge.
If you’re struggling to manage your disposable income then you might be tempted to cancel your existing cover or, alternatively, to not take out cover in order to have a greater amount of spending freedom.
However, before you make any decisions, it’s important to remember why your protection is in place.
Life insurance helps your family maintain their living standards if the worst happens
If you were to die prematurely, would your family be able to maintain their standard of living? Could they afford to remain in the family home? Could they pay their bills without your income to rely on?
If the answer to any of these questions is “no”, then life insurance is essential. It means your loved ones will receive financial support if the worst happens, enabling them to have the life you wanted for them.
If you’re worried about the cost of your life insurance, speak to us about your options.
For example, if you took out your cover with the lender that arranged your mortgage there may be cheaper options available in the market. And, there may be more suitable types of cover, such as family income benefit, that can provide the protection you need without breaking the bank.
Critical Illness cover provides valuable financial support at a stressful time
Figures from Cancer Research UK reveal that 1 in 2 people in the UK will be diagnosed with cancer sometime in their life.
If you received a cancer diagnosis, or you had a heart attack or stroke, would you be able to continue working? Could you carry on paying your bills if you had to take an extended period off work?
Critical Illness cover will pay a tax-free lump sum if you’re diagnosed with an illness covered under your policy. It enables you to concentrate on your recovery and not worry about your personal finances at a stressful time.
As the last two years have shown us, being struck by a debilitating disease can happen at any time. So, cancelling your Critical Illness cover could leave you vulnerable to a financial shock if you were diagnosed with a serious condition.
Income protection provides a safety net if you can’t work due to illness or injury
Income protection can be your greatest asset should you be unable to work due to illness or injury. It helps to cover monthly outgoings, acting as a lasting source of support, allowing you to maintain your standard of living.
In turn, this helps preserve any hard-earned savings you may have, which could be used to cover financial commitments.
If you cancelled your income protection during the cost of living crisis, you’d have to rely on either your employer’s sick pay, or on Statutory Sick Pay which, in 2022/23, is just £99.35 a week. Could you continue to maintain your standard of living on less than £100 a week?
Data shared by FTAdviser estimates that the average UK household’s expenditure is £2,548 a month. If you were on an annual salary of £45,000 and suddenly unable to work, debt could soon build.
Even with two months’ employer sick pay and Statutory Sick Pay you could accumulate £23,000 of debt within 12 months if your expenditure remained the same.
Speak to us before you cancel any protection or you take out any new cover
Cover such as income protection provides a crucial safety net if you cannot work due to illness or injury and you face growing household costs.
In some ways, financial protection is even more necessary in times of rising prices to help maintain your financial security when a drop in income could have severe consequences.
So, if you’re thinking of cancelling your protection, or you are thinking about putting off taking out the cover you need, speak to us.
We’re independent, so we can scour the market on your behalf to find the best price for the cover you need. Indeed, we also take a lower than standard commission from insurers so we can pass these savings on to you.
Speaking to us means you can find a great price for the cover you need – ensuring you don’t have to pay more than you should in these difficult times.
We can also look at a range of different protection options to provide you with the peace of mind you’re looking for at the best possible price.
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