Should I stop my life insurance payments if my income has fallen?

22 June 2021

5 min read

Melanie Wright
Melanie Wright

Personal Finance Journalist

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Cancelling your life insurance might free up a bit of extra money each month, but if you can afford to continue making your payments, think very carefully before stopping your policy.

If your income has fallen, perhaps because you’ve lost your job, or have had to take time out due to ill heath, you may need to reduce your outgoings to make ends meet.

Working out how and where to cut costs isn’t always easy, especially if you’re weighing up whether to stop paying for valuable financial protection such as life insurance. Here, we look at some of the options that may be available to you, and why stopping your life insurance payments shouldn’t be entered into lightly.

 

Assessing your financial priorities

If you’ve got less money coming in than usual, prioritising your bills is a good starting point when adapting to a new lower budget. The most important thing is to keep the roof over your head, so paying your mortgage or rent, along with any other debts secured against your home, should be your priority bills.

It’s then worth going through all your spending, to seeing whether there are any other outgoings you might be able to reduce instead.

For example, do you have a regular magazine subscription that you could stop, or are you paying monthly for the gym when you rarely go?

 Working out the actual benefit to you of everything that you spend money on can be helpful when deciding where you can cut costs.

 

Can you afford not to have life cover?

Having life cover can provide peace of mind that your loved ones won’t have financial worries if you’re no longer around, as your policy will pay out a lump sum on death. Payments can vary in price, and the potential benefits of this cover can be huge. It’s worth looking at all the other ways you might be able to reduce your outgoings before cancelling your life insurance. 

It’s also worth remembering that if you decide to cancel your cover so you can buy it again once you’re back on track financially, your payments are likely to be more expensive. Most likely, you’ll be older and therefore considered higher risk by insurers.

There’s no cash value if you cancel your policy either.

Check whether you have any other protection in place if you’re worried you might not be able to afford your payments.

For example, if your income has reduced but you are still employed, your employer may provide death-in-service benefit.

This is an employee benefit which pays out a tax-free lump sum if you are employed by the company at the time of your death, with the cost covered by your employer.

Unlike life cover, where you decide how much money your loved ones will need in the event of your death, the amount you’ll get from your death-in-service benefit is determined by your annual salary and is typically between two and four times this amount.

 

Get in touch with your insurer

If you are finding it difficult to make ends meet, make sure you contact your insurer as soon as possible. Let them know you’re finding it difficult to make your life insurance payments.

Depending on your individual circumstances, they may be able to provide you with support, such as a payment holiday, or reduced payments for a certain amount of time.

It’s also worth seeing whether there might be any other ways to make your cover more affordable. For example, your insurer might be able to reduce your policy’s payout if you’ve chosen a sum that’s more than you’d need to cover things like your mortgage.

Whatever you do, don’t suffer in silence – there may well be options available to you which will enable to you to keep up your life insurance and keep costs manageable.

Biography

Melanie Wright is an award-winning freelance financial journalist, who has written about personal finance and consumer issues for the past 22 years. She is a former Deputy Editor of The Daily Telegraph's Your Money section, and wrote the Sunday Mirror’s Money section for more than a decade. She contributes to a wide range of publications and websites, including The Sunday Times, The Daily Telegraph, The Observer and the Radio Times.