We should all know income protection provides a safety net if something were to happen and you were unable to work for a period of time. However, what we are beginning to see in recent times is that with recent the rate rises, fuel price increases and the overall cost of living becoming much more expensive, many people are choosing to opt out of income protection to save more cash.
With the cost of living increases, everyone is looking for areas they can save money. You can justify fuel and groceries because they are needed every day, but when was the last time you claimed on your insurances? Chances are not recently, and this is a big reason why people are looking at cancelling their insurance policies, along with the fact that premiums tend to increase each year as the level of indexation as well as with the age of the holder.
What happens to my cover if I cancel it completely and want to re-apply later?
In the last two years there have been changes to the income protection products that can be offered. If a policy is cancelled then you will need to go through the full underwriting process again, meaning any health issues or change of occupation will be reflected in the offering.
This can mean exclusions or loadings may be applied or even decline of cover, leaving you vulnerable if something were to happen and making it more difficult when reapplying for insurance.
Before completely cancelling your cover, it is important to review your needs as you might end up with higher levels of cover than what you actually need. There might be other alternatives to reduce the cost as well such as increasing waiting periods, reducing benefit periods, reducing cover or changing the ownership and structure. You should also review the reason you took out insurance in the first place to see if it is still relevant. You might also be eligible to claim tax back on your insurance for some premiums if they are held outside of your super.
How we can help.
At Financial Framework we have seen an increase in claims recently which has highlighted to us the importance of being covered by insurance. We can work with you to review your cashflow and expenses to make sure you are prioritising what is important and make professional judgement on whether your cover is right for you, or other areas you might be able to cut back on to save more money.
It is highly important to speak to your financial adviser before making a big decision such as cancelling your insurance.