With the cost of living on the rise, chances are you’re looking for ways to reduce your outgoings.
One of the things you may be looking to cut back on is your protection or insurance payments – although these should be seen as an absolute necessity, even when times are tough.
So, here are three vital reasons you should review your financial protection amid the cost of living crisis.
1. Don’t just cancel them
When economic conditions are as tough as they are just now, you may be looking to cut back on as many monthly expenses as possible. However, no matter how tempting it may be, you should ideally resist the urge to cancel your financial protection.
This is because insurance could be your greatest form of financial security should the worst happen. For example, if you should fall ill or sustain an injury, your protection could help cover any vital monthly expenses, such as mortgage repayments or gas and electric bills.
If you are caught without financial protection and you are unable to work, you don’t want to have to dip into your savings or get yourself into excessive debt just to maintain your current standard of living.
Indeed, the Office for National Statistics has calculated that during financial year ending in 2020, the average UK household expenditure was around £587 a week, or roughly £2,348 a month. If the main earner, with an average salary of £45,000, can’t work then debt will quickly accumulate.
Even when you take the two-months’ worth of employer sick pay, and Statutory Sick Pay into account, you could accrue around £23,000 worth of debt within 12 months if your expenditure remained the same.
Building up this much debt could hamstring you financially, so you can see why financial protection is so vital.
Even though you will likely be looking for ways to save money amid this cost of living crisis, outright cancelling your insurance could mean you’re throwing away your biggest source of financial security.
2. They might not provide enough cover
Another reason for reviewing your existing insurance cover could be that the necessary payout may not be enough in real terms.
This all comes down to inflation. For example, if you took out £100,000 worth of life cover 10 years ago, you’d need £119,414 today to buy the same goods and services when accounting for inflation.
Similarly, if you covered yourself 10 years ago for the monthly value of £1,000, you would need £1,194 today to maintain your same standard of living.
So, as you can see, if you have held an insurance policy for many years now, it may not be providing adequate levels of protection for you and your family in real terms, which is why it may be time to review any existing cover you already have.
3. Think about index-linking your protection when you take out new cover
One way that you can ensure your protection will always provide an adequate level of financial support over time is by “index-linking” your cover.
Simply put, index-linking is a method of inflation-proofing your financial protection – especially cover that is designed to provide support for a long period of time.
An index-linked insurance policy means that the sum assured will rise in line with inflation, or by a fixed percentage each year.
Since your payout value will increase in line with inflation, you can rest assured that any payout will retain its real value over time. Although your premium may also increase over time with indexation, doing so will give you the peace of mind that, should the worst happen, you will be adequately covered.
You should keep in mind that you typically can’t add an indexation option to your existing insurance. So, if you would like some help finding protection that better suits your current circumstances, get in touch with us.
Get in touch
Are you still unsure as to how you should review your financial protection to ensure it still provides the security you and your family need? If so, please email enquire@london-money.co.uk or call (0207) 808 4120 to find out more.
Please note
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.