Canceling vital insurance to save money could be tragically wrong economics
Canceling vital insurance to save money could prove a tragically wrong economy, consumers are warned. Evidence suggests that financial stress causes families to stop paying premiums on policies that provide valuable protection against loss of income.
They are urged not to take this step. Other families who have not had access to this type of protection are encouraged to consider it, in part because the cost may rise in the future.
Alan Lucky, safeguarding specialist at Highclere Financial Services in Hemel Hempstead, Hertfordshire, says people don’t want to think about facing tragedies such as the death of a partner or cancer. But he warns that failure to plan ahead is dangerous.
Protected: Insurance has helped Caroline Logue since her husband had to give up his construction business after suffering a serious condition that affected his spine
“I’ve had young couples who lend a large joint mortgage that they wouldn’t be able to afford if one of them didn’t work,” Lucky says. When I mention protection insurance, they think they don’t need it. It’s worrying. Consumers are also canceling policies due to concerns about cost.
The Association of British Insurers refuses to publish cancellation figures, but the bad publicity surrounding poorly sold PPI plus the high cost of coverage is believed to have deterred consumers.
Although family budgets come under pressure, says Kevin Carr, CEO of Protection Review, an insurance forum, canceling coverage could lead to increased future costs or, worse, financial disaster.
“As we get older, the cost of coverage goes up or our health may change, affecting premiums,” he says. “If you want cover in the future, the cost will go up, or worse – you may be denied.”
The protection “gap” is significant, Carr and Lucky say. According to Scottish Widows, only four out of ten people have life insurance. One in three families admits that they cannot financially support themselves if they lose their main income. Almost half of families with children depend on two salaries to pay off the mortgage and other bills.
The decision that Caroline Logue and her husband, Brian, made in 1999 to insure against loss of income or health proved to be the best decision they ever made.
Purchasing MPPI and critical illness cover at the time means they have stayed today in the home they built together in Claudy, County Londonderry, and the education of their 16-year-old son, Niall, has not been disrupted.
When Brian, 47, developed a serious condition affecting the lower discs in his spine two years ago and had to give up his work as a construction worker, the family was able to claim this document, through Legal & General. Brian’s condition came about due to an accident many years ago. The excruciating back pain he is now experiencing means he has trouble walking, climbing stairs and driving.
The MPPI covers monthly mortgage payments for a specified period, usually 12 months or two years, in the event that the policyholder is unable to work due to illness or injury, or becomes redundant.
Critical illness insurance pays a lump sum when critical illness is diagnosed. As Logues had taken the cover in her 30s – when insurance companies saw the risks as relatively low – and her mortgage was relatively small, the total monthly premiums were only £38.
Premiums can be much higher, depending on the amount insured and your age and health status.
Logues’ policy paid a monthly income to cover the mortgage for two years. However, since this was coming to an end last June, L&G contacted the couple and said that if medical evidence proves that Brian has a permanent disability, the couple will have a claim on the critical illness policy.
After MRI scans and a four-hour evaluation of the home by an independent physician, L&G agreed to pay and the Logues received a lump sum, tax-free.
“You never think you’re going to end up in this situation,” says Caroline, 46, who works in finance for the recycling company. Brian has always been fit and strong and takes great pride in providing for his family. His back condition was a huge shock to all of us.
“It makes the brain depressed and he has good and bad days.” But at least, thank God, we removed the protective cover. It is one weight that he lifts for us.
Mortgage nightmare: Sue Mitchison is afraid of getting her house back
Sue and Ian Mitchison Find out what it costs to be uninsured.
Ian was diagnosed with prostate cancer three years ago and had to give up his job in the construction trade. Sue gave up work to take care of him full time.
Without any Payment Protection Cover or critical illness insurance, Ian and Sue, 45, had to dip into savings to pay the mortgage and other bills. When that ran out, they soon ran into arrears.
The couple, from Hawking, Kent, live on benefits and face repossession, even though Ian is now seriously ill.
“Our mortgage lender lowered our monthly payments to help, but now it’s demanding that we start paying more to pay off arrears,” Sue says.
‘It’s a nightmare.’ We can hardly make ends meet as it is. Sue admits that, like most people, she was willing to take the risks of the disease. “We never thought this would happen to us,” she says.
Cover protection was introduced when we increased the mortgage in 2006, but it looked expensive. We thought we could manage on our own.
Su hopes to negotiate with the lender for more time.
“It still means I will have to sell when Ian dies because I won’t be able to make the payments myself.”
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