With 95% of UK adults concerned about the rising cost of living according to a recent survey by mutual insurer, Royal London, one in ten (11%) are contemplating cutting back on their protection policies to save money.
The cost of living has risen at its fastest rate in 30 years with inflation increasing to 6.2% in February and set to increase further in the coming months. Rapidly climbing costs are hitting people in the pocket and stretching household finances beyond levels many will have seen in their lifetime.
Record price levels at the petrol pumps and the supermarket checkouts and soaring household energy bills mean people have difficult choices to make. The issue is so widespread that nine out of ten people are planning changes to their outgoings to pay for cost of living increases.
Two-thirds (66%) of people say they will change their food shopping habits, almost half (46%) will try to manage their energy bills by reducing the time their central heating is on and nearly a fifth (17%) say they’ll turn off the heating completely.
Concerned about where the money comes from to fund household bills, nearly two-thirds (63%) of people are planning to re-jig their finances, with 31% paying less into their savings, and 11% reducing their protection premiums or stopping them altogether.
Gregor Sked, protection development and technical manager at Royal London, said:
“Rising energy bills and inflation levels not seen for three decades have massively impacted people’s everyday living costs and on top of that people will see a reduction in their take home pay as a result of National Insurance hikes. And as life gets more expensive, people are having to make difficult choices about their monthly outgoings. The danger is that they compromise their future financial resilience and make a decision about their protection insurance that they may regret further down the line.
“It’s a challenge that many advisers are facing as clients look for ways to cut down their monthly expenditure. After all, protection insurance isn’t tangible, and they’ve possibly forgotten the compelling reasons that persuaded them to take it out in the first place. However, there are a number of angles that are worth discussing with clients thinking about cancelling their cover.”
Royal London’s tips – ensuring clients retain their financial safety net
1. Remind clients why they took out the policy
If it’s been a while since you discussed the benefits of protection, a refresh of what their policy covers may ease any concerns about where their monthly direct debit is going.
It doesn’t matter if they took out mortgage protection, income protection, critical illness cover or even family income benefit – the discussion would have centred on their need to repay debts or maintain their standard of living if an unexpected life event occurred. While money might be more of a concern at the moment, has the need to repay debts or maintain their lifestyle changed? Have the risks that they face changed?
2. Reinforce the value of their policy
Engaging clients with a topic that is a difficult conversation to have, with a product that you can’t see or touch is tricky. However, one of the core benefits which will undoubtedly have been at the heart of their original decision making process is the peace of mind that if they’re off work sick or become seriously ill, they’ll receive money to help them and their family.
Some other financial products offer some form of tangible aspect; from being able to log-into your current account online to viewing the value of your pension on a mobile app. But with protection, aside from the ongoing reviews and support from their adviser there’s little on-going communication to remind clients of the valuable cover they have.
What is worth reminding them of is the access to valuable services, which may make all the difference to convince them to keep their policy in place. Additional support services can offer assistance, such as mental wellbeing apps, 24/7 virtual GPs, dedicated nurses who can refer clients to treatments and therapies that dovetail what’s being received from the NHS, and even legal and recruitment services. Some providers even allow clients to access these services without needing to make a claim and extend the services out to the partner and children of the person covered.
3. Talk about future proofing
The speed at which costs are increasing is unprecedented for many. You don’t need to look far to see the level of concern among UK adults about energy bills, food shopping and mobile phone contracts.
This should provide an easy opening to talk about income protection. How would a client pay for these necessities if they were off work sick? And with the added burden of inflation, do they run the risk of having to make even more cut-backs if they had to take an extended period of time off work.
Adding indexation to a policy is a solid way of future proofing cover like income protection, allowing clients to maintain the real value of their protection over time.
4. Could a lifestyle review make an impact on the premium?
It could be worth looking at whether a provider would consider a lifestyle review? If a client has made a change to their lifestyle, occupation, or recreational activities that you consider reduces their chance of a claim, some providers may be able to review the terms of the policy which could result in a reduction in their premium.
5. Discuss the long-term implications of cancelling
The most significant implication of cancelling the policy is how clients would be able to pay off their mortgage or maintain the standard of living they’re used to if the worst happened. But also, cancelling their policy now could mean an increased cost of taking out a new plan in the future. It may be worth reminding clients that the cost of applying for policies like life cover, critical illness cover or income protection will generally increase with age.