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How to deal with the UK cost of living crisis

Yet another blow to our finances last week and more potential strain on our pockets. In its attempts to combat rising inflation rates, the Bank of England has set a 0.5% increase to interest rates, raising them from 1.25% to 1.75%. This is the biggest interest rate increase in the UK in 27 years. This leaves many people in the UK worried about how they can afford to live.

This increase is directly tied into inflation and the fact that the cost of living in the UK has increased drastically recently. The ongoing rising cost of living crisis is set to continue for a while. This leaves UK residents understandably worried about how they can afford their monthly bills, at a time where prices are rising all around us.

When faced with rising costs everywhere you turn, it is natural to want to cut back. People may decide to cut out unnecessary expenses where they can, whether that is a weekly takeaway, a streaming service subscription or a gym membership.

If you are generally healthy, you may think that your life insurance is an expense you can do without for the time being. Although it is possible you may not need to make a claim any time soon, what if this isn’t the case?

Do you really want to risk leaving your family in financial difficulty. What if the worst were to happen and you were to become critically ill or even worse pass away?

Life insurance is the number one way you can protect yourself against this happening. Don’t be hasty and cancel your policy, in the hope that this will be a quick fix in terms of rising monthly costs.

We can promise you that the help and support your family would receive from a life insurance pay out is worth keeping your policy. Life insurance isn’t expendable, it is vital to ensuring your family’s well-being.

Below we will highlight how the increase in interest rates is directly tied to the cost of living crisis here in the UK. This will demonstrate why life insurance is still just as necessary to you as it was before – if not more so. 

We will even tell you about ways you can save on the rates you are paying for your insurance policies. We’re sure you will be eager to hear about this!

Why does inflation increase interest rates?

Firstly, you may be wondering “how does increasing interest rates reduce inflation?”.

The main reason for interest rates increasing is due to inflation skyrocketing in recent months. The cost of everything is going up all around us these days, you can see it everywhere you turn. From your grocery shopping to the price of petrol, there has been a slow but steady increase in pricing leading to an inevitable effect on your wallet.

It has now gotten to the point where the Bank of England could no longer ignore the issue – something had to be done.

To put it simply, supply and demand is the main thing that affects inflation. If prices increase due to a rise in interest rates, this leads to people having less disposable income due to paying more for things like mortgage payments.

This in turn leads to a decrease in demand for other products. Prices can then be lowered as the products will be more readily available than if there was a high demand for them.

The thought process here is that long term the country will benefit from this. The idea of paying more for big monthly expenses such as mortgage payments to eventually decrease smaller costs is not a comforting one.

Do not despair though, there are ways to protect yourself in the event of price increases. We will further outline this in the next section of this article.

Cost of living increase 2022: What can I do to protect myself and my wallet?

As mentioned above, the cost of living in the UK is through the roof at the moment. It makes sense that there is a feeling of unease across most of the general public. It is harder and harder to relax knowing that prices are sky high and the potential for further increases is not ruled out.

Cutting back seems sensible when faced with this situation. Around 60%* of adults in the UK have reported they are spending less on non-essential items to try and avoid rising costs. There has also been in an increase in the use of other support services such as food banks

Energy costs in the UK have risen through the roof in recent months. The wholesale price of gas quadrupled last year causing an energy price cap rise of 54% in April. Further increases in energy prices are expected in October.*

There are ways in which you can ensure your family’s best interests during the UK cost of living crisis. Our advice is to protect yourself wherever you can. Insurance is the best way of doing this.

You may think it seems counterproductive to add on an insurance policy as an extra expense. Or to continue paying for an insurance policy you may not need a pay out from currently, but we can assure you this isn’t the case.

A small payment every month is nothing compared to a potential massive expense if for example you were left unable to work due to illness or injury.

There are various types of insurance on offer to protect against specific circumstances. Below are just a few examples and how they can protect your finances:

Insurance policyBenefits
Critical illness coverPays out a tax-free cash lump sum if you are diagnosed with a serious illness or medical condition during your policy term.Can be used to help with bills and medical expenses.
Income protection insuranceWill pay out a monthly payment to you to pay for things such as mortgage payments and bills if you are unable to work due to illness or injury.Particularly useful for people who are self-employed
Business life insuranceThere are several types of business life insurance: relevant life insurance, keyperson insurance and shareholder protection. All are designed to protect businesses against financial difficulty, if a key person to the business becomes seriously ill or passes away.
Mortgage life insuranceAlso known as ‘decreasing term’ life insurance as it is designed to decrease cover at roughly the same rate as your capital and repayment mortgage.Intended to help your family clear your mortgage debt if you were to pass away. 

We understand in some cases, it may not seem viable to continue paying for policies right now. But as shown above, the benefits to doing so are great in the event your family needs financial support. At a time of financial uncertainty, it seems a good idea to protect your family against any potential money worries further down the line.

High cost of living supplement: How the government can help you

The increase in costs of things such as energy bills has had a massive impact on families across the UK. But did you know the government has put support in place to help you with these rising costs?

The government has put some dedicated measures in place to try and support the most vulnerable UK residents – pledging £37 billion in support this year**.

You may not be able to access every type of support, but you may be able to get something. Check if you are eligible for the cost of living support packages that are available.

Below we will outline a few of the plans the government has put into place:

Support packageBenefit
Energy bill rebate packageWorth up to £550 for around 28 billion households.Not needed to be paid back.
Council tax rebateHouses in council tax bands A-D are eligible for a £150 payment to help with costs.Already being paid out to households in England, Scotland and Wales with Northern Ireland receiving an equivalent amount.
£650 cost of living payment for those on benefitsPeople on benefits or tax credits such as Universal Credit, Income-based Jobseekers allowance, Child Tax Credit etc can receive a £650 cost of living payment across 2 lump sums. This applies to those entitled to have received payment between 26 April – 25 May 2022.
£300 pension credit cost of living paymentA top up for any pensioner entitled to a Winter Fuel Payment over 8 million pensioner households receive.Pensioners will receive an extra £300 to combat rising energy prices.
£150 disability cost of living paymentPeople with disabilities are eligible for a £150 payment due to additional costs they may have due to their disability.This will be paid tax-free directly to households in September and will apply to people on some form of disability benefit such as Disability Living Allowance etc
Household Support FundThe Household Support Fund plans to provide £1 billion in support this year to families in need that are not eligible for other forms of support.This scheme runs until March 2023 and the government pledged a further £500 million in support back in May.
Cutting fuel duty and freezing alcohol dutyFrom March 2022, there was a 12-month cut of 5 pence per litre to the main rates of fuel duty.For the 3rd year in a row alcohol duty has been frozen for 2022-23, saving £3 billion over the next 5 years.
Universal credit taper rateThe UC taper rate has been reduced to 55% from 63% and work allowances have been increased by £500 per annum from late 2021.
National insurance (raising contribution thresholds and lowering contributions for self-employed)Starting thresholds for National Insurance have risen to £12,570 as of July 2022, benefitting 30 million working people in the UK with a typical employee looking to save over £330 a year.Lower earning self-employed people can now keep more of their earnings while still building National insurance credits, leading to a tax cut for around 500,000 people saving roughly £165 a year.

There are many other schemes and actions the government have undertaken to try and improve financial prospects for UK residents. For further information, check the gov.uk website.

Don’t cancel your life insurance: review it

Isn’t it ironic that when faced with a cost of living increase, some people’s first instinct is to cut out insurance cover – something that can massively save on costs further down the line.

If you don’t have cover, you will have no financial back up in place. In the case that the worst happens, you would want the additional support there for your family.

Costs are going up all around us. Is it really worth saving a small amount in the short term by risking a huge amount of worry and financial insecurity in the future?

You could cancel your policy and then try and take out a new policy at a later point. It will most likely be more expensive for you to do so though. This could be due to rising costs or the simple fact that every time we pass another birthday life insurance becomes slightly more expensive.

You will have been given a quote based on the age you were when you initially took out the policy. Now being older than when you originally took out the policy, this will most likely cause a small increase in your monthly premiums.

The same will also apply if you were diagnosed with any medical conditions between taking out your previous policy and a new one.

Even if you are seriously thinking you can no longer afford your monthly premiums, there are ways to lower costs without cancelling your policy entirely.

Some people don’t realise that once you have taken out a policy you are not tied into it indefinitely. You are absolutely able to speak to your provider and potentially negotiate yourself a better deal. You could even switch providers entirely for a better deal at a better price.

If you are unsure on your best options, get in touch with our team of expert advisers.

We have over 20 years of experience in securing great cover for families across the UK. We will be able to help you to find a cheaper deal while not compromising on quality.

How to save money on your life insurance: Even during a cost of living crisis

Cost of living crisis or not, there are always ways to save money on your life insurance. When you think of a term like life insurance it seems very final. A cover for your entire life or at least the majority of it.

You forget that actually, whole of life insurance aside, this generally isn’t the case, and the policy is only set for a shorter period of time. Even if you are not far into your policy, you still have options and room for manoeuvre.

Negotiation is always an option. If you believe you are paying more than you can now afford for your insurance, speak to your provider. It may seem too good to be true that you can simply have a conversation and save yourself a considerable amount of money but it’s true.

Insurers can often offer you a better deal than the one you currently have by either switching the type of policy or policy term. And if your current provider cannot offer what you want, shop around. There may be another provider that has something more suitable for your needs – and at a better price.

If you are wanting to adjust your life insurance cover but aren’t sure where to start, get in touch with one of our expert advisers today. Our main priority here is making sure you get a deal that works for your family – without overspending unnecessarily.

Having an insurance policy in place sets you up for financial security and gives you the ability to rest easily knowing your family’s future is secured. You can contact us on our website for a FREE QUOTE or give us a call on 0800 009 6559. Our team are always ready and eager to help with any concerns you may have.

*according to the Office for National Statistics (ONS)

**according to HM Treasury – gov.uk


Below are some resources for further information on the topics covered in this article:

Office for National Statistics – Inflation and the cost of living for UK households, overview

Gov.uk – Overall government support for the cost of living: factsheet

Bank of England – When will inflation start to come down?

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