In a world of financial challenges, being prepared for anything that may come your way should ideally be a fundamental part of your financial plan. A practical way to prepare for these unforeseen events and safeguard yourself against the unexpected is with financial protection.

Financial protection is any form of cover designed to support you through a period of difficulty. Some of the most common forms include life cover, income protection, and critical illness cover.

Despite the importance of protection, a growing number of people in the UK are cancelling or reducing their cover due to financial doubt.

Indeed, according to the Independent, a Financial Conduct Authority (FCA) survey revealed that 8% of people who had protection in place in Spring 2022 had cancelled one or more of their policies, and 7% had reduced their level of cover to save money due to rising costs.

Continue reading to discover precisely why some people in the UK are cancelling or reducing their protection, and why this may leave you financially vulnerable.

Many in the UK are cancelling their protection due to rising costs

There’s a chance that high inflation and rising mortgage repayment rates have already placed significant strain on your household finances. Indeed, the Office for National Statistics reports that the Consumer Prices Index (CPI) rose by 7.9% in the 12 months leading to June 2023, while the Bank of England (BoE) increased the base rate again on 3 August, up to 5.25%. 

As a result of these higher costs, you may be looking for ways to reduce your spending and ease the burden of mounting expenses.

If you’ve felt this way in the past couple of years, then you’re not alone – Insurance Times reports that, of the 7% of individuals that cut back on their cover in the latter three months of 2022, 43% cancelled their policies entirely. 

Even though it is somewhat understandable that current financial difficulties may encourage you to save money wherever you can, cancelling your protection policies could have several long-term consequences. 

Read on to discover how you could jeopardise the financial security of your loved ones and leave them vulnerable to the unthinkable by cancelling your protection.  

Protection can offer you financial security should the unthinkable happen

Suppose you cancel your protection, or even reduce your level of cover. In this case, you could be inadvertently forgoing an invaluable safety net for you and your family to support yourselves during difficult periods.

For instance, consider what might happen to you and your loved ones if you suddenly fell ill or sustained an injury and could no longer work. If you didn’t have income protection or critical illness cover in place, would you be able to support yourselves without financial protection during this period of lost income? 

Similarly, if you were to pass away unexpectedly and you don’t have life cover in place, would your family be able to continue living their lifestyle comfortably without you?

While it’s easy to think that “this will never happen to me”, it’s important to remember that the unexpected can happen to anyone. In fact, the Guardian estimates that more than 500,000 people will be diagnosed with cancer annually by 2040.

This highlights the fact that you never know when tragedy can strike. And without adequate levels of protection in place, you may struggle to financially support yourself and your family through this period of uncertainty.

Protection may be less expensive than you initially thought

Even though you’re likely searching for ways to save money, there’s a chance that protection is much cheaper than you think. 

In a survey from Legal & General, 2,000 millennials – those born between 1981 and 1996 – were asked to estimate the monthly cost of £100,000 life cover for a 30-year-old non-smoker over a 30-year term. 

The median guess was £23 a month, with around 25% of those surveyed stating that it would cost more than £50 a month. Though, the actual cost was only £7.27 a month.

Of course, this is only a rough price, and the cost of your protection will vary depending on your circumstances. 

Regardless, it’s worth considering whether these relatively low costs – sometimes as little as the price of a TV subscription or a takeaway meal each month – are a fair exchange for an invaluable financial safety net. 

Protection can help you secure the peace of mind that you and your family will be financially supported

It may be prudent to consider protection as the bedrock of your overall financial plan, ensuring that any unforeseen events don’t derail your progress towards your goals and milestones. 

For instance, if the unthinkable were to happen and you don’t have protection, you may be unable to support yourselves financially and may need to cut your pension contributions as a result, meaning you may have less overall to live on when you stop working. 

Read more: The importance of maintaining your pension contributions regardless of financial uncertainty. 

Yet, with adequate levels of protection in place, you can rest assured that any challenging events will be less likely to hinder your long-term financial security. 

Even if you plan to reduce your cover temporarily to save some money, it’s worth noting that some cover is better than none. As such, it may be unwise to view a temporary reduction in your cover as a short-term solution to economic difficulty, as you never know when the unexpected could happen. 

If you’re still unsure whether financial cover is right for you, it may be worth speaking with a professional about your protection needs. We can help you understand the importance of the distinct types of cover available and how they could support you and your loved ones. 

Better yet, we can help you secure much-needed peace of mind about your financial security and help you dispel any concerns you have about protection.

Get in touch

We can help you determine your protection needs to ensure that you and your loved ones receive financial support when needed most. 

To find out more, please email info@holbornfinancial.com or call 020 8946 8186 to get in touch.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.