If you’re worried about the rising cost of living in the UK, you’re not alone.
A new survey by consumer champion Which? has revealed that 65% of households have resorted to measures such as cutting back on essentials, selling items or dipping into savings to pay their rapidly rising bills.
This represents the highest level recorded by Which? and equates to an estimated 18.2 million households.
One of the ways you may be thinking of making savings is by cancelling some of your regular payments. While cancelling a Netflix subscription or a gym membership you never use might be prudent planning, there are certain essentials that you should try and maintain if you can.
Here are five things you should never cancel even if money is tight.
Your life insurance
Your life insurance is a vital part of your financial plan. It gives you the reassurance that your loved ones will receive financial support when they really need it, enabling them to pay essential bills, stay in the family home, and maintain their standard of living.
Cancelling your life insurance might save a few pounds now but the longer-term consequences could be disastrous. Not having protection in place might mean your family can no longer afford their regular outgoings, leaving them in a difficult financial position at what will already be a stressful time.
Additionally, you might not realise that, if you cancel a protection policy such as life insurance, you might not be able to take it out again in the future if your health changes. Or, if you can get cover, it may be significantly more expensive.
For example, if you have been paying £10 or £20 a month for a few years, cancelling now and taking the cover out in the future will be more expensive as:
- You will be older when you take out the cover
- Your health may have deteriorated in the intervening period
- Life insurance rates have risen slightly in recent months.
If you are really struggling, your insurer might be able to help by offering a payment holiday. Always speak to them first to establish whether there are options available before you simply cancel your cover.
Your pension contributions
If you’re looking to reduce your outgoings, pausing your pension contributions might also look like an easy way to save a few pounds every month.
However, it’s important to think carefully about this approach as what might seem like a small move now could have a significant impact on your later-life income.
Research by AJ Bell has found that a 30-year-old who pauses their pension contributions for three years could end up with a fund £25,000 smaller by the time they reach State Pension age.
There are three main reasons for this:
- You won’t be making any contributions yourself to your pension pot
- You’ll also miss out on any employer contributions. UK employers are usually required to pay 3% of your salary into your pension on your behalf, so opting out of your scheme also means you’ll lose this “free money” from your employer
- You receive tax relief on your contributions at your marginal rate of Income Tax. So, stopping your own contributions also means this valuable tax relief is not added to your fund.
You then need to consider that you’ll miss out on many years of potential returns that your savings, your employer contributions, and the tax relief would have generated.
Tom Selby from AJ Bell says: “Over the long-term you’ll also need to think about how you plug the gap. Early contributions have the opportunity to benefit from compound growth over time – so by putting off saving today you’ll likely need to work harder to make up for lost time later on.”
Your home insurance
Cancelling your home insurance might also provide you with short-term savings, but it does represent a big risk.
If you did cancel your contents insurance, you’d no longer be protected if there was a disaster at home – perhaps a break-in, a flood, or accidental damage to valuables.
Cancelling a buildings insurance policy is even more risky. This covers the structure of your property and so if you’re affected by a flood or fire, the insurance will pay for your home to be rebuilt.
Rather than cancelling cover, make sure you shop around carefully when your policy is up for renewal. You may find you can save a significant sum by switching provider. And, if you do have some emergency savings, you might be able to reduce the cost of cover by accepting a higher excess on your policy.
Your income protection and Critical Illness cover
If you were unable to work for an extended period due to illness or injury, would you be able to pay your mortgage or rent? Could you afford your regular monthly outgoings, and maintain your family’s standard of living?
If not, income protection and Critical Illness cover is there to provide financial support when it’s most needed.
Cancelling this cover might save you some money in the short term, but you would be seriously out of pocket if you were ever unable to work and did not have this safety net in place.
Additionally, like life insurance, cancelling this now and taking it out again at a later date is likely to be much more expensive – especially if your health has deteriorated since you took out your original cover.
Your car insurance
Your car insurance can make a fair dent in your outgoings – especially if you’re a younger driver. However, if you’re even considering cancelling your car insurance, think again.
The main reason is that it is illegal to drive a vehicle on a road or in a public place without at least third-party insurance. If the police catch you, you will face a fixed penalty of £300 and six penalty points on your driving licence.
Additionally, your vehicle can be seized and destroyed. If the case goes to court, you could be disqualified from driving and you could face a much bigger fine.
As with home insurance, the best way to cut costs on your car insurance is to shop around when your policy is up for renewal.
We can help you to save money on your life insurance and other protection
Millions of households are currently looking for ways to save money – whether that’s on energy bills, the weekly shop, or on your vitally important protection.
As life insurance, income protection, and Critical Illness cover experts, we can help you to find great terms for the cover you need.
We can compare the prices of cover from dozens of the UK’s leading insurance companies, meaning you won’t pay any more than you should for the valuable protection you need.
To save you even more, we take a lower than standard rate of commission from all providers, enabling us to pass a further cost saving onto you.
To find out how we can help you to save money during this cost of living crisis, get in touch and speak to one of our friendly experts.
Alternatively, get an online life insurance quote now in just a couple of minutes.
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