I can't afford my life insurance payments

15 June 2021

5 min read

Simon Read
Simon Read

Personal Finance Journalist

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The number of people out of work has risen dramatically in recent times leaving more and more of us having to make some difficult decisions about our finances.

Uncertain times usually lead to drastic measures and many people may be thinking about how to cut back on expenses to save money when they need to tighten their belts.

 

Cutting back

The first thing to go are the little luxuries that just may be unaffordable now. But soon it’s time to look at regular expenses to see which can be ditched. Checking a bank statement yields a rich harvest of standing orders or direct debits that could be ripe for cutting. Making some sensible savings can yield hundreds of extra pounds for you, which can help you cope while things may be a bit tighter.

That doesn’t mean cutting back, necessarily, but just finding better deals by switching such things as energy suppliers or broadband/tv companies. But then you may spot your life insurance premium and think that scrapping the monthly payments for cover will be an easy saving.

Yes, in the short term it may give you a few extra pounds in your pocket, but if you do cancel your life insurance policy, you leave yourself with a big financial risk.

 

Peace of mind

You need to remind yourself why you took out a life insurance policy to really understand what you could be giving up. At some stage you would have started a policy with a view to protecting your loved ones.

Life insurance is all about giving you peace of mind and knowing that your family won’t suffer financially if you were no longer around to help support them. Frankly, the best outcome of a life insurance policy is no pay-out, as that will mean all’s been well.

What you will have bought for your cash is the comfort of knowing that if the worst does happen, those left behind won’t be left with money worries. In short, it’s not something you should think about cancelling without thinking carefully about it.

 

Life insurance - comforting cover for loved ones

The stark truth is that if you stop making your monthly payments, your comforting cover will usually stop as well. You may presume that you can simply start up again when your finances are looking a bit better, but the cost of a new policy could be much more than your existing one.

That’s because life insurance generally becomes more expensive the older you get. There’s a simple reason for that; your life expectancy is set to be shorter the older you are, which means new life insurance will be more costly now, especially if you took out the original policy several years ago.

However, depending on what type of policy you have, there may be some options open to you to help your cost-cutting drive. Remember though, there is no option to cash in a policy as that’s not the way the insurance works; it’s not a savings scheme.

 

Thinking of cancelling your life insurance?

If you have what is known as a term insurance policy, which is often linked to a mortgage, once you stop paying your premiums your cover will cease.

But rather than simply cancelling and leaving yourself with no cover, you could look into starting a new policy with fewer benefits or a lower payout, which could mean cheaper monthly payments. But you must ensure you get the cover you need: a cheap policy is not much good if it’s inadequate.

If you have what is known as a whole-of-life policy, you may have more options and you may be able to change or modify it to reflect your changed situation. Talk to your insurer to discuss what options may be available to you. Losing valuable cover because you haven’t considered all the different things you can do could prove the wrong move.

Biography

Simon Read was the last personal finance editor at The Independent newspaper and now reports on finance matters for the BBC, The Evening Standard, The Daily Mirror and The Sun. He champions consumer rights and is a commentator on a range of tv and radio shows, such as Watchdog on BBC1, Sky News, Channel 5 News, Radio 5 Live, LBC and Talk Radio. He was a money expert on three series of the BBC1 TV show Right On The Money and presented a BBC Radio 4 documentary on fraud as well as battling for fair treatment from companies for two years in his Moneywise Fights For Your Rights column.