The cost of living crisis has forced millions of UK households to tighten purse strings and re-examine their budgets. If you are looking to cut back, you might have considered cutting your pension contributions or cancelling the insurance plans you hold.
Aviva recently confirmed that its insurance premiums increased in 2022, in line with rising payout costs. Motor cover rose by 20% while home policies saw a 13% increase.
The Social Market Foundation (SMF), as reported by Insurance Times, recently confirmed that these price hikes were leading to consumers cutting the protection they held. But this could be a huge mistake.
Keep reading for a look at some of the life events and milestones, as well as the unexpected shocks, which could mean you need to fall back on robust protection policies.
An accident or illness can strike at any time but your household bills still need paying
The coronavirus pandemic highlighted how quickly the unexpected can strike. Three years later, the physical, emotional, and financial fallout from 2020 remains.
A sudden accident or illness can happen at any time. So too a redundancy or job loss.
At HA&W, we can help you to review your financial protection to ensure that you can continue to pay household bills – and other commitments like a mortgage or a child’s school fees – whatever obstacles you face.
Protection could cover lost income if you have an accident or fall ill
You might already have some form of income protection. If so, financial planning could help to ensure it remains affordable as the cost of living crisis bites. If you don’t currently have it, we can help you to decide if it is right for you.
If you are the main breadwinner in your household, think carefully about what would happen if your income was suddenly cut off.
Income protection generally pays a monthly sum to cover you while you get back into work. Typically, it will kick in after a predetermined “excess” period has elapsed, with the cost of cover dependent on the length of this excess period, as well as factors like:
- Your age and medical history
- The riskiness of the work you do
- How much cover you want.
Income protection can be especially useful for the self-employed but it’s important to remember that it won’t cover you for every illness and you might not be covered for pre-existing conditions so be sure to check your plan carefully.
You might need money to cover the cost of treatment or care
As well as income protection, you might hold critical illness cover. If you hold both, and the cost of living crisis is forcing you to revisit your protection, this discovery might feel like it presents an easy win.
But remember that these products cover different scenarios and often maintaining both is key.
While a job loss or an accident can be a huge shock, protection can plug the financial gaps until you get back on your feet. The diagnosis of a serious illness, on the other hand, can be devastating and have a more long-term effect on your financial security.
Critical illness cover will usually pay a lump sum if you are diagnosed with a condition that is covered by the policy. You might use this money for treatment, to cover mortgage repayments, or to make modifications to your home.
Whatever the money is used for, the important thing is that the cover removes financial worries at an already stressful time.
You might be in perfect health currently, but sacrificing your future security to help you through a cost of living crisis in the present could have far-reaching consequences.
Life insurance is crucial if you have dependants and a mortgage
If you have dependants, it is vital that you maintain life cover, or put it in place if you don’t currently have it. You might think it is expensive, especially in the current climate, but the real question is whether you can afford not to have it.
Even a quick internet search will likely confirm that the cover is cheaper than you thought. While many factors affect the cost of your premiums – the type of cover, length of the term, and your individual circumstances – you might find cover for as little as £5 a month.
You’ll then have peace of mind that your family will be looked after should the worst happen.
Life cover provides a lump sum on death but you’ll need to think about the type that works best for you and be sure to speak to us before you decide. The three main types of life insurance cover are:
- Term assurance, which pays out a predetermined amount (the “sum assured”) if you die within the policy term
- Decreasing term assurance, which pays a lump sum if you die within the policy term, but the size of the payout decreases over time, so is often used to cover the cost of a reducing mortgage and can be cheaper than term assurance
- Whole of life cover, which pays a sum assured whenever death occurs and so is usually the most expensive type of cover.
If you are reviewing your life cover provision, be sure to speak to us before you make any decisions that could affect your family’s financial security should the worst happen.
Get in touch
Protection and insurance (alongside pension savings and investments) are the best way to your future self, and as such, they play a key role in your financial plan.
If you are revisiting your household budget, you might need help managing your financial commitments now while maintaining the protection you need to cover potential shocks in the future.
Contact us now to find out how our Chartered financial planners could help you.
