Your views: cancelling protection in the cost of living crisis 

We asked advisers about their experiences of consumers cancelling (or considering cancelling) protection due to the rising cost of living; what conversations brokers are having with consumers about protection in light of this; and any insight into how the advice profession can be part of tackling this issue.

Related topics:  Newspage,  Your Views
Protection Reporter
17th February 2023
Cost of Living
"Now more than ever is it so important for clients to have close relationships with their advisers so that they can weather the changes in the current economic climate."

Asking brokers via PR platform Newspage, we found that the number of protection contracts being cancelled is increasing, but that advisers are speaking to their clients about reviewing their policies instead of cancelling.

Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial, said: "The number of protection contracts cancelling has increased and is increasing. Despite some clients knowing the importance of their policy, they are making a choice between keeping it in force or feeding their children. It really is that dire for some people. Thankfully not all clients are in this position, and others cancelling their plans just need re-educating on why they took out the policy and what it would mean if they didn't have it. Explaining that trying to get insurance at a later date will mean further expense and even possibly policies not being available, through exclusions where applicable, normally makes the client see the importance of what they have in place."

Review rather than cancel

Benjamin Blyth, director at Houz Mortgages, said: "If you think there's a cost of living crisis, wait until the 'cost of death with no protection in place' crisis. There are many things that are better cancelled, such as TV services we don't watch, the gym membership we don't use and even mobile plans (we all have too high a data allowance don't we?). We need to be honest with ourselves when cancelling things, rank their value and importance and try to protect those at the top of the list. If that really is Netflix, fair enough. I've spoken to my clients about reviewing their policies before cancelling completely so that they come to me for the best possible way to make changes to them, if they absolutely must. They have them for a reason, so remember why these policies exist: to keep you and your family financially sound in the event of unexpected illness or death."

Anil Mistry, director and mortgage broker at RNR Mortgage Solutions, added: Protection policies are crucial safety nets for families in times of financial difficulty, and should be the last to be cancelled. Originally purchased to safeguard mortgage debt in the event of serious illness, death, or loss of income due to accident or sickness, cancellation of such a policy should only be considered after careful reflection.

Mistry said that advisers should be asking their clients the following questions: Can your family bear the burden of a large mortgage debt in the event of your passing? Are you prepared to continue paying your mortgage in the face of serious illness or extended time off work due to an accident or sickness? He said that "only after thorough consideration of these questions" should clients proceed with cancelling their protection policy.

Mike Staton, director at Staton Mortgages, stressed the importance of protection for clients, adding: "If you want to put your children's future at risk, go ahead and cancel your protection. This is the second most important purchase that you will make in your life. If you can't afford to pay for protection then you can't afford a mortgage. Customers should be budgeting for this in their application for a mortgage and it should be one of the last things they ever cancel."

Why adviser-client relationships are more important than ever

Elliot Cotterell, director at Windsor Hill Mortgages, discussed the importance of client relationships during the cost of living crisis. He said: "Now more than ever is it so important for clients to have close relationships with their advisers so that they can weather the changes in the current economic climate. Depending on the type of policy held by a client, they may well be able to make changes to their policy to impact the price. However, if finances are tight now when you are fit and well, then imagine how stressful it would be should you need to rely on your protection policy and it not pay what you expected, wanted and needed. Or even worse, you cancel your advised and tailored policy and receive nothing. In a cost of living crisis, you should cut back on non-essentials but your health and well-being aren't part of that category. Always speak with your adviser before making these changes that could significantly impact your life."

Aaron Forster, director at Create Finance, added: "Unfortunately, this is becoming more common especially when customers are looking to cut costs. the biggest frustration of being an adviser is when customers leave payments such as Netflix or Sky protect and cancel the most important thing which is their own lives. It's important as advisers that we understand the reasons why they are cancelling the policy and if its affordability to run through other expenditures with the customer. Its making sure that customers know that if they do change their minds or want to cancel the policy they come back to you as there may be alternatives available meaning they dont lose important benefits and leave their families at risk."

Cancellation could be a false economy

Joshua Gerstler, chartered financial planner and owner at The Orchard Practice, explained why cancelling protection policies could be a false economy: "Protection policies are an easy target for those looking to cut back on their monthly outgoings. Many do not see an immediate benefit to the policies and therefore see no need to be paying the money. However this is a huge mistake. If you are struggling to pay for these things now whilst you are fit and healthy and earning an income, imagine how much harder it would be if you were serioulsy ill and or could not work or a partner was to die. There are usually other areas where savings can be made before cancelling protection even becomes thinkable." 

Austyn Johnson, founder at Mortgages For Actors, agreed, stressing: "Reduce your premiums, lower your cover, but dont cancel it, its not worth it."

An example of what can happen

Luke Thompson, director at PAB Wealth Management, discussed a recent example of a client cancelling their policy: "We have had to deal with clients looking to cancel their policies in recent months and you tend to find that they will not contact you prior to cancelling the policy. 

"I unfortunately have been in a position before whereby a client cancelled their policy and then a claim needed to be made a few weeks later which was obviously declined. Using this as an example of what can happen and making sure that they are aware of the consequences of their actions is the most important thing to do as an adviser. Talking about the other sacrifices they could make such as not having the morning Costa or Starbucks does help."

However, Sabrina Hall, mortgage and protection adviser at Kind Financial Services said she has yet to see clients cancelling policies. She said: "My experience so far is that I've had more enquiries regarding the protection and none of my clients has cancelled as of yet. I feel that whilst the cost of living crisis is having a major impact on many people at the same time it's really making people think about their budget and the value they are getting out of the payments that are going out each month. Protection explained correctly to a client should be the solution to a concern or worry and so the value of having that in place is high. In addition, I think that many people are feeling a real sense of how much they would struggle if an income was lost due to death or illness because of how stretched they are so protection is more important than ever."

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