The Importance of Insurance in a Cost-of-Living Crisis
Over the last year, the cost of living in the UK has been rising at an astronomical rate. The prices of necessities, such as food and energy prices have risen considerably. There are several macro-scale events contributing to this – including Brexit, the COVID-19 pandemic, and the war in Ukraine.
According to the latest insights from the ONS, the rate of inflation touched 9.6% in the year to October 2022, which was the largest rise in four decades. By the year to July 2023, the inflation rate had dropped to 6.4%. This shows the spiralling inflation rates are beginning to recover, but it’s important to acknowledge that reduced rates don’t make prices fall – simply rise slower.
Cutting insurance may seem like an obvious choice to cut expenses – there is no benefit until the conditions are met and suddenly it’s absolutely needed. According InsurTech to 29% of UK consumers have either stopped or reduced premiums over the past 12 months, with a further 11% planning to follow suit upon the policy’s renewal. The cost-of-living crisis was responsible for 45% of insurance costs. The areas with the greatest percentage of consumers who have or are planning to make cuts are:
- Life insurance – paying out sums to your family upon your death – 41%
- Home Insurance – paying out sums to cover damage to your home or robberies – 38%
- Car Insurance – covering costs needed to repair damage to your car – 38%
- Mobile Phone Insurance – covering damage to or theft of phone – 35%
- Pet Insurance – covering costs to treat an ill or injured pet – 35%
Why Shouldn’t I Cut Insurance?
While insurance may not bring anything to the table right now, it can save you from financial disaster. We tend to believe we’re indestructible – and so not in need of cover – until we find out we’re just as prone to death, illness, theft, or car troubles as everyone else.
Having coverage for when life throws unwanted surprises at you can save you from financial ruin. Don’t think of insurance payments as money you’re not getting back, think of it as guaranteeing stability to you and your family when you really, REALLY need it. Avoid making cuts to your insurance that will prevent you from receiving the amount of compensation your circumstances require.
You must also consider whether the compensation you will receive is still enough – taking into account the high interest rates since signing the contract. Unfortunately, this may mean you actually need to increase payments to provide sufficient cover.
To help with juggling the cost-of-living crisis and your security from insurance, here’s one trick to reduce payment costs. Use annual payments over monthly instalments, if possible. According to Which?, monthly instalments effectively borrow the remaining year’s payments with standard interest rates of approximately 30% APR – making annual payments a way to cut costs without cutting your insurance.