The cost of living crisis has been extremely challenging for many; from the rise in inflation, significant increases in the prices of energy and wages that haven’t kept up with the increased costs – it has left many with less disposable income. This has caused a lot of stress and financial hardship to people from all walks of life.
As a result, a lot of people have had to reassess their finances and make cuts where necessary. While cutting back on some expenses may help in the short-term, thoughtful decision-making is key during uncertain times. Cutting down on monthly expenses like streaming services or gym membership may help in the short-term, but other monthly expenses should be prioritised.
This is why cancelling insurance or reducing life insurance payments during times of uncertainty may cause more harm than good. Nobody knows what the future may bring, and while it can be tempting to cut back on an expense, it’s important to make sure you’re protected should the worst happen.
Why you might want to cancel your insurance
The cost of living crisis has affected the way we spend, and is a likely reason why you may want to cancel your insurance. A recent study by Deloitte found that in the past year over a third of consumers cancelled or paused their insurance policies, with life insurance being the most commonly cancelled product [1].
One reason why you might cancel your insurance is because of changes in your personal life. Whether you’ve recently retired, recently gotten a divorce or ended a civil partnership, each change in circumstance can cause a shift in priorities or financial stability, which is why some may choose to reduce short-term financial expenses. However, it’s important to consider if it’s the right decision for you and your family.
Cancelling insurance: Key considerations
Before cancelling a life insurance policy, customers should carefully consider several key factors.
- They should assess their current financial situation to see if they have the means to financially take care of their loved ones in the event of their passing.
- They should also check if there are any fees or immediate loss of benefits should they cancel their insurance policy early.
- If their main reason for cancelling insurance is to cut costs, perhaps speak with your provider about reducing premiums or cover. Or compare your policy with other providers to see if there’s another policy to suit your needs better.
- You may be financially able to look after your loved ones in your current circumstances. However, it’s important to prepare for any changes in your future, whether it’s marriage, children or grandchildren, or any unexpected health issues, life insurance coverage may be necessary.
Cancelling a life insurance policy is a significant decision that requires thoughtful evaluation of both short-term needs and long-term implications.
Do I get money back when cancelling life insurance?
When cancelling life insurance, many may ask questions like ‘do you get money back when cancelling life insurance’, particularly during the cooling-off period. During this period, usually within 30 days from purchasing the policy, customers may be entitled to a refund or partial refund if they later decide that life insurance isn’t for them, or they find the policy terms don’t suit their needs.
However, it’s crucial to understand that once the cooling-off period ends and the policy is cancelled, there is generally no payout. Life insurance policies are designed to provide a benefit to beneficiaries upon the policyholder’s death. Therefore, cancelling the policy means forfeiting any potential future benefits.
Customers should carefully weigh the decision to cancel against their current and future financial needs. While not having to pay an extra monthly cost may be a temporary relief, it’s essential to consider the long-term consequences, especially regarding protection for loved ones if they unexpectedly pass away. This is why customers should explore every alternative before cancelling their policy outright, whether that’s adjusting their payment amount or cutting costs elsewhere. For in depth financial advice, consulting with a financial advisor can help you make more informed financial decisions and provide you with financial advice during economic uncertainty.
Can my dependents support themselves once I’m gone?
When contemplating cancelling your life insurance, it’s important to assess if your dependents are able to support themselves financially once you’ve passed away. A policy holder’s spouse, children or elderly parents may need the policy’s end-of-life payout to cover essential expenses like mortgage payments, utility bills or healthcare etc.
It’s important to consider your long-term financial obligations, for example, if you’re currently the breadwinner in your household, this loss of income could heavily affect your dependents standard of living. Furthermore, if they would be unable to keep up with mortgage or rent payments without your income or end-of-life payout, they may struggle to keep up with payments and could have to leave their family home. The same could be said if your household had any additional debts that couldn’t be settled without your income or end-of-life payout.
Even if your dependents have their own sources of income, it’s important to assess if the loss of your income would negatively impact their standard of living and if they’d be able to keep up with any financial obligations.
Instead of cancelling any insurance policies outright, perhaps explore other alternatives, like reducing your premiums or cover, or switching providers. This way you’ll still be leaving money behind for loved ones, ensuring they’ll be taken care of during an emotionally and financially stressful time.
Can my dependents pay for my funeral?
When considering long-term financial obligations, it’s important to assess if your dependents would be able to pay for your funeral. Funerals can often cost thousands of pounds and this may put financial pressure on your already grieving loved ones. Your dependents may have their own financial obligations and this unexpected cost could negatively impact their financial future and put their financial goals on hold. This is where life insurance can help and the end-of-life payout they receive can be put towards any funeral costs or unexpected bills.
Do I need life insurance once my mortgage is paid off?
After paying off their mortgage, some people might feel tempted to cancel their life insurance policies, however, whether or not they should cancel their policy depends on various factors.
Firstly, you should consider your dependents. If you have children, a spouse, or other dependents who rely on your income, life insurance can provide financial security in case of your unexpected death. Even without a mortgage, your loved ones may still depend on your income for living expenses, education costs, or to meet other needs that help maintain their existing lifestyle.
Secondly, think about other debts and financial obligations. While your mortgage may be paid off, you may still have other debts such as car payments, credit card debt, or various loans. Life insurance can be put towards some of these obligations and prevent your loved ones from struggling to repay any debt once you’re gone. There’s also any potential debt to keep in mind. While your loved ones may be debt free now, there may be a future expense which they may struggle to pay off immediately, whether it’s funeral costs, student loans or simply a nest egg for a rainy day in the future.
Can I reapply once I cancel my life insurance?
If you’re considering whether to cancel an existing life insurance policy and apply for a new one later, it’s crucial to be aware that taking out new coverage may come at a higher cost. As people age, life insurance premiums tend to rise, reflecting the higher risk that comes with mortality at an older age. Additionally, any health conditions developed since the original policy was taken out could result in higher premiums or even potential denial of coverage.
Insurance providers assess coverage based on risk, that comes from age, health, lifestyle, and medical history. Therefore, if you’ve aged since purchasing your current policy or you have developed health conditions, gaining new coverage could be significantly more expensive.
Even minor health issues that may seem insignificant can lead to higher premiums or even rejection of coverage. As applying for life insurance involves medical underwriting, where insurers will assess your current health through medical exams, questionnaires, and possibly access to your medical records. Any negative changes in your health or your lifestyle can influence the insurer’s decision and the cost of your monthly premium.
This is why sticking with your current life insurance policy can be more cost effective in the long-term and give you coverage without the risk of a higher premium or risk of your policy application being rejected.
Does cancelling life insurance hurt my credit score?
If you’re asking yourself, does cancelling insurance hurt your credit score, the answer is no. Unlike other financial products like credit cards or loans, life insurance policies aren’t considered debt, and aren’t included in credit reports, so cancelling a life insurance policy won’t affect your credit score. As there is also no long-term commitment with life insurance, you can cancel at any time you choose. Therefore, should you decide to apply for a loan or credit card in the future, cancelling your life insurance policy shouldn’t affect your ability to be approved. The only risk that comes with cancelling your policy, is the lack of coverage you will receive if you pass away.
What happens once I cancel my life insurance policy?
The following is an example of what would happen once you cancel your life insurance policy, if you were a non-smoker and had a monthly premium of £30. Once you cancel your life insurance policy, you would immediately lose any coverage and should the worst happen and you pass away, your family would miss out on a final payout. Then with no payout, your family may find it difficult to afford a funeral, adding financial stress to an already emotional time. Furthermore, if you were the breadwinner, your family may struggle staying financially afloat after your death.
On the other hand, if you didn’t cancel your life insurance policy, both you and your dependents could rest easy, knowing that there’s some financial security during an emotional time. Additionally, if you kept your life insurance policy active, your family would have access to support services like the National Bereavement Service, available through the Shepherds Friendly Over 50s Life Insurance.
Is cancelling life insurance the right financial move?
Cancelling your life insurance premiums may seem like a safe financial move in the short-term, however, when planning your financial future it’s crucial to also consider the long-term. The short-term may provide one less expense, but in the long-term with no life insurance protection it may lead to financial complications for your loved ones after you pass away. Therefore, while this may seem like a cost-effective solution, it’s important to consider the long-term effects this could have on your loved ones and weigh the potential consequences so you can make an informed decision.
If you’re set on reducing your current monthly expenses, there may be different options, such as reducing your premiums. Some life insurance policies offer flexibility, allowing you to adjust your coverage or payment amounts to better suit your current financial situation. By reducing premiums instead of cancelling altogether, you can maintain some level of coverage for your dependents while easing the short-term financial burden.
Prior to cancelling or reducing your monthly premiums, consider if there may be other financial steps you can take to stop spending money. Whether this is cutting down on unnecessary spending, finding cheaper alternatives or finding ways to increase your income. By fully assessing your overall financial situation and making strategic adjustments, you may find alternatives to cutting protection for your loved ones.
Where can I find help if I need it?
If you need any help, visit the Shepherds Friendly Over 50s Life Insurance page where you can find more helpful information. If you have any further queries, don’t hesitate to complete our help & support form.
If you feel you have made an informed financial decision and wish to cancel your policy, please contact the Member Services Team with your full name and plan number. Our team will assist you and address any questions or concerns you may have.
Overall, there are key considerations to keep in mind when you’re thinking about cancelling your life insurance. Before making any hasty decisions, take a moment to consider the potential consequences for your loved ones. Cancelling your policy might seem like a quick fix, but it could leave your family vulnerable in the event of your unexpected passing. Reflect on the financial security and peace of mind that life insurance provides your loved ones during an emotionally distressing time. Take the time to assess your options carefully and prioritise the protection of those who matter most.
Sources:
[1] How is the cost of living crisis impacting insurance? – Confused.com
