Feeling the pinch

Angela Faherty

April 5, 2008

The cost of living in the UK is increasing. Although the rate of inflation is still low, the prices of some groceries are going up and we are being hit with higher gas and electricity bills.

Thanks to the price of oil, petrol and diesel have passed the £1 per litre mark and are set to spiral even higher. The Chancellor of the Exchequer, Alistair Darling, has also clobbered us for more tax on alcohol in his latest Budget. Overall, many people will be feeling the squeeze.

At the same time, the BBC reported that five million people – one in 10 adults – spend more money than they earn on a monthly basis.

The research by comparison website Uswitch says that spending on non-essential items has risen 65 per cent over the past decade, outpacing growth in both average net earnings, and essential living costs, which rose by 48 per cent and 43 per cent respectively over the same period.

Average debt repayments jumped from £174 in 1997 to £356 in 2007, an increase of 104 per cent. At the same time, the number of credit cards issued almost doubled from 36 million to 71 million.

Add this to home owners who have borrowed more than they probably could afford and we have a population spending their whole income and becoming indebted up to the hilt.

It is at times like these that consumers will start to look for ways of cutting back on their expenditure. They are certainly not going to want to cut back on things that give them pleasure like holidays abroad and entertainment, so naturally they will look at the more mundane expenditures that they have, which unfortunately includes protection and insurance policies.

Realising the importance of protection

Borrowers with big mortgages that already have life and critical illness policies may start questioning their value and cancel them without taking advice. Those who are taking out mortgages will be even more resistant to taking a protection policy if they feel that this is an item of expenditure too far.

But ironically the financial pressures that prompt people to consider cancelling their insurance are exactly the same financial pressures that should make them realise the importance of keeping those policies in place. Because if someone died or couldn’t work because of an illness and the income stopped coming in, then those financial woes would become even more difficult to bear.

In such difficult economic conditions, clients need to be encouraged by their advisers to maintain their payment protection no matter how tempting it might be to cancel and save a bit of money in the process.

Protection premiums are currently about as low as they have ever been and there are other ways of freeing up a little cash in order to continue to protect their financial lifestyle.

Making comparisons

In the busy modern world we pay extra for convenience. For example, buying a pre-packed sandwich from a supermarket is more expensive than buying separate bread and ingredients and making one at home.

Work out the savings that could be made from that one simple lifestyle change and it might be enough to cover an annual life assurance premium.

What is the cost of a large daily latte over the course of a week? For those people who buy a magazine regularly, consider taking an annual subscription – it could be up to half the price of the monthly cover price. What about walking to work instead of taking the bus or car? That saves money and is a great way to get fit.

On the subject of fitness, many people join expensive gyms and make a real effort for the first six weeks then stop going. They should cancel their membership or move to a lower cost option.

Buying CDs, DVDs and white goods from the internet can often save a huge amount over the high-street price, and, of course, there are websites that can ensure you get the best deals on gas and electricity tariffs as well as other outgoings such as mobile phone packages.

So if finances do become increasingly stretched as the economy hovers near recession we need to reiterate the need for protection, particularly mortgage protection, more than ever.

And if our clients are tempted to cancel a plan or not even take one out, we should be able to demonstrate that the premiums are quite low and that they can make some simple lifestyle and expenditure changes to free up some cash for the premium and much more besides.

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