Joshua Gerstler, chartered financial planner and owner of The Orchard Practice, said his firm was “definitely seeing borrowers having less disposable income available to put towards protection policies”.
He said this was mainly happening because mortgage rates and the cost of living had increased.
“For those borrowers who look to cancel or exclude certain cover, we will always try and encourage them to have a small bit of every cover, rather than full cover for something and no cover for something else. Life does not let us choose when we will be ill, unable to work or die, so we need to prepare for bad surprises.
“For those looking to cancel policies as they feel the premiums are too high, we will try and work with them to find a way to continue the policies. If they are struggling to pay the policy premiums now, they would struggle even more if they no longer had an income or one of them were to die,” Gerstler added.
Patricia McGirr, managing director, Finanze success at Finanze, agreed and said: “During economic conditions like these, convincing individuals to invest in insurance is much tougher.”
She continued to say that allocating money towards insurance premiums seemed “burdensome” when budgets were limited.
However, McGirr said it was important for advisers to highlight the long-term benefits of protection.
She added: “For those grappling with stark choices and financial hardships, it’s crucial to recognise that insurances like life cover are not luxuries but necessities. Allocating a portion of the family budget to insurance premiums is a prudent decision, as it offers peace of mind and protection in unforeseen circumstances. In challenging times, individuals may consider cancelling policies as a ‘quick win’ to free up some money.
“That can be a false economy. Most people are unaware that insurance is an allowable expense, meaning, if you are in debt and negotiating with creditors on a repayment plan, you are allowed to continue with insurance essentials such as life or critical illness cover.”
Remember why cover was needed
Sandra Feuell, director and protection adviser at Feuell4Life, said she was seeing more people thinking about cancelling their personal insurance, but warned that this was the “last thing they should do” as it left them “exposed”.
She advised that anyone thinking of doing the same should remember why they took a policy out in the first place and why it was important.
Feuell said: “Remember that the policy was taken out when you were younger, perhaps fitter and healthier, so could be more expensive if you cancel and then open a new policy further down the line.”
Feuell said people should try to lower their expenditure in other ways.
She added: “Always look to see if there is other expenditure that you could cut back on first. Also, perhaps you could take a payment holiday? Finally, remember that premiums for most life insurance are fixed when the policy is taken out and are guaranteed for the full term of the cover.
“Some cover is better than none at all so always speak to an adviser to discuss your options.”
Joe Stallard, director and adviser at House and Holiday Home Mortgages, said his firm advised clients not to overlook the importance of insurance in case unforeseen circumstances arose.
Stallard said: “We aim to help all our clients with their insurance needs and show them the benefits of the different products available. Budget is always a consideration, and something is always better than nothing. Unfortunately, it seems to be that this is something people are cutting back on with an attitude of ‘it’ll never happen to me’.
“So, the way we look at it is, as long as people understand the risks, they’re at least able to make an informed decision.”
More interest in policies
Other advisers were having the opposite experience with clients and reported a greater interest in making sure they were covered in case things went wrong.
David Corbett, protection specialist at Protection 1st, said his firm was seeing an “upturn in clients willing to engage in protection conversations”, especially when it came to policies around income.
He added: “It’s very appealing at present for clients to be told they have the option to insure their income and standard of living. There will be claw backs as a result of the squeeze on people’s outgoings, but if you’ve advised clients well, they understood the need at the outset and the risk of inaction, then fear not. Our sector is remarkably robust in times like these. Famous last words? I hope not.”
Rhys Schofield, director at Peak Mortgages and Protection, said his firm had not seen a rise in protection policy cancellations but said it was probably because they recommended cover based on quality, so clients were aware of the benefit.
He said if advice was given based on the policy being cheap or giving a free gift, then the risk of cancellation was likely to be higher.
Schofield added: “If anything, people are more aware of money now so are more open to talking about protection as without it they face dire financial straits quicker. As a result, we’re finding a particularly strong uptake around income protection.
“Income protection is the most commonly claimed on, yet under-utilised, solution in our arsenal as advisers. On top of this, inflation hasn’t made protection premiums any more expensive. If anything, price rises in food and energy have made good quality policies seem cheaper by comparison.”
