With a secure job and a good salary, Sophie Taylor has never had to worry about money before.
But the 31-year-old project manager is now so concerned about the soaring cost of living that she has resorted to cancelling her life insurance.
The policy would have paid out £200,000 if she died — enough to take care of her family in Liverpool.
Safety nets: The number of protection policies – which includes life insurance, critical illness cover and income protection – held across the UK has fallen 8% compared to July last year
It also included critical illness cover, which meant she would get a £25,000 lump sum if she was diagnosed with a serious medical condition.
For Sophie, this protection insurance provided valuable peace of mind, particularly since her mum is currently unwell and the family doesn’t yet know if the illness is hereditary.
Despite this, she has given up the cover in order to save £20 a month. Sophie says that as she works from home, she needs this extra £240 a year for her energy bills. ‘I’m looking at everything I can cut,’ she says.
She is not alone. Experts are concerned about the number of households forgoing insurance that safeguards their financial future, in order to save money now.
The number of protection policies — which include life insurance, critical illness cover and income protection — held by UK households has fallen by 8 per cent compared with July last year, according to insurance firm iPipeline.
And a survey by comparison site NerdWallet found that 41 per cent of people were considering ditching life insurance in the near future.
Money Mail recently revealed how some cash-strapped workers were putting their retirement plans at risk by pulling the plug on their pension contributions. Now experts fear families are being too quick to scale back on essential insurance.
Elizabeth Buko, a protection adviser at Wealth From Little, says many of her clients have reduced their life and critical illness cover because of budget constraints.
‘These are very important if you have dependents who rely on you and would suffer financially if you passed away,’ she cautions.
Life cover that will pay off the mortgage is important if you are the breadwinner, as your partner and children will be able to continue living in the family home.
How I saved nearly £1,000 a year – without losing peace of mind
Overlapping policies: Will Robins
As a costly autumn and winter loom, I decided it was time to review my family’s outgoings. Money always seems to take second place to work and parenting.
But with bills soaring, subscriptions and standing orders all came under inspection (goodbye farm vegetable box).
Next, I called my mortgage adviser to go through what life insurance, critical illness and protection policies he’d put in place. I wanted to understand exactly what I was paying nearly £2,000 a year for.
My Vitality life cover costs £77.83 a month. It would pay out £485,461 in the event of my death — a sum that would rise in line with inflation.
This included critical illness cover, providing a one-off payment of £55,993 if I became seriously ill.
I was also paying £83.27 a month for critical illness cover with Legal & General, which would pay a £96,000 lump sum.
Both policies included income protection insurance, which would cover 80 per cent of my salary. Altogether, I was paying £161.10 a month, or £1,933.20 a year.
I was cautious about reducing my cover by too much, even though I’m worried about food and energy bills. So I kept my income protection as it was, but reduced the critical illness payout from £151,993 to £100,000.
I also tweaked my life policy so the cover, and my premiums, no longer rise with inflation but the payout would still clear the mortgage.
I’m now paying £151.22 a month for life, critical illness and income protection policies with Aegon and LV=. This saved me nearly £10 a month, or £120 a year. But after looking again, I found another oversight.
My employer already provides an income protection policy covering 50 per cent of my salary.
My wife has a similar deal, so our total household saving ended up being even greater, at £70 a month or £840 a year.
We have given our bank balance a much-needed boost without sacrificing our peace of mind.
Will Robins, Citywire
And income protection policies ensure you can keep up with bill payments if you are unable to work because of illness or redundancy.Connor Campbell, personal finance expert at NerdWallet, says: ‘As there is rarely any immediate benefit to paying into insurance, you might see it as an easy option for the chopping block if you have to cut costs. But this only works until something goes wrong.’
It doesn’t help that premiums are increasing. The average life insurance policy for someone in their 40s currently costs £29.79 a month, rising to £34.10 for those aged between 50 and 59, according to comparison site Moneysupermarket. This is up from £22.40 and £25.37 respectively in 2021.
However, experts say there are ways to bring down costs without cancelling your policy altogether.
Ms Buko says the first step is to ask your broker or provider for a review, to see if your cover still matches your needs.
For example, if your policy would pay out £700,000 but your mortgage is only £350,000, you could cut your cover by 50 per cent to bring down premiums. Or if your policy lasts longer than your mortgage repayment period, you could shorten it.
Some providers reward healthy lifestyles, too. ‘Many will slash the premiums if you were a smoker but have not used any tobacco, vaping or nicotine products for 12 months,’ Ms Buko adds.
Data from Drewberry Insurance shows you could halve income protection and critical illness premiums by increasing the time you must wait between making a claim and getting a payout from four to 13 weeks. But you need savings elsewhere to plug the gap.
Adam Bullock, UK director at TopCashback, adds: ‘Check if your employer already covers you — many workplaces will offer life and health insurance.’
This is Money has teamed up with protection insurance specialist Cavendish Online to help readers find the best and cheapest life insurance. In return for a one-off £25 fee, all commission usually paid goes back into the policy to make payments cheaper. Find out more and compare life insurance costs with our tool.
Best and cheapest life insurance
This is Money has partnered with Cavendish Online to offer our readers the cheapest life insurance quotes available on the market.
Those taking out policies can opt to pay a one-off fee of £25 and in return all commission that would usually be received goes back into the policy to make payments cheaper, which can potentially save thousands of pounds over their lifetime.
You can get a fully underwritten quote online yourself, or speak to a fully qualified independent adviser who can compare life insurance and recommend the best option for you from a wide range of insurers.
