Cancelling an existing insurance policy: what you need to consider
The coronavirus pandemic has led to Brits re-assessing their outgoings as some face job losses, wage cuts and business owners hang in the balance.
Government support has been promised and is due to help in the coming weeks but people are looking to tighten their purse strings now.
As such, health and life insurers have reported an influx of inquiries from existing customers questioning whether they still need the protection.
Ian Sawyer, commercial director at life and health insurance intermediary Assured Futures said people shouldn’t rush into cancelling a policy to cut their costs without first taking into account the potential consequences.
Given the different policies, he outlines the most important factors to consider before taking any drastic measures.
And below, we list what the various insurers are doing to help existing customers after LV= rolled out a protection payment holiday for those affected by coronavirus.
Private Medical Insurance (PMI)
- Certain conditions are excluded even before buying a policy but for those which develop during the policy period should be covered as long as you continue to pay. If you stop and re-buy later, your insurance clock starts again and your existing conditions will be excluded. Keeping an existing policy ensures these and any new conditions remain covered.
- Aside from coronavirus, people are still at risk of being ill with other conditions such as cancer. If you keep your cover and develop cancer, an unknown lump or even a sore joint, the policy will ensure you’re treated.
- There are other benefits apart from consultations and operations, such as NHS cash benefits if admitted to hospital, virtual GP appointments, digital physiotherapy and mental health support. During this unprecedented time digital services have really come to the fore.
- Once the pandemic is over, it will take time for the NHS to recover and it’s likely non-essential operations will continue to be delayed. PMI policyholders can be seen privately and have any procedure urgently needed.
- Insurers are looking at ways to help customers in financial difficulty. Reducing cover, increasing excess, changing plan types and in some cases even offering payment holidays (see below for more information).
- If you’ve made a claim during the policy period, you may still be liable to pay the premium in full even if you decide to cancel.
Income Protection Insurance
- An Income Protection (IP) policy provides the holder with an income should they be out of work due to accident or sickness. While we’re in the grip of a health pandemic, you’re still at risk of being involved in an accident or developing a separate illness, so there is still a need to keep your income protection policy on risk.
- Many policies are also linked with mortgages, so those thinking of cancelling their policy should be wary of the future and what would happen to their lifestyles, as well as their family’s protection, should they be without work.
- If you’ve a policy with a guaranteed premium amount, you’re unlikely to ever find a price that low in the future should you decide to cancel now.
- Those with unemployment insurance must keep this cover at all costs as this type of insurance is now no longer available. If it does return in future, it will likely be restricted and more expensive.
- Some policies also come with other benefits such as digital GPs and health MOTs.
- The older you are, the more expensive your premiums.
- Policy holders are covered should they pass away due to covid-19.
- Again, added benefits include access to digital GPs, second medical opinions and many more services to benefit the elderly or those in poor health.
- Policy holders’ family will receive a lump sum that can help pay off the mortgage, cover the expenses of a funeral or provide support during financial need.
- Anyone cancelling their policy may be denied new life insurance cover if they’ve suffered a serious medical condition since taking out the original agreement.
Accident, sickness and unemployment cover
- Unemployment cover is currently unavailable on the market and anyone who cancels may not be eligible in the future to purchase it again. If it goes on sale, buyers will be subject to an initial exclusion period with any new policy.
- Those with a long-standing redundancy should avoid cancellation at the moment as many employers will face some financial struggle due to the current pandemic.
- Accident, sickness and redundancy cover provides people with an income while they’re out of work, allowing holders to keep a roof over their heads and up-to-date with bills.
- The younger you are in purchasing cover, the better. This is because you won’t be covered for any pre-existing medical conditions.
Over 50’s cover
- Cancellation will result in the loss of all premiums paid so far.
- The policy could help with funeral costs or provide some money to loved ones.
- The older you are, the more expensive the monthly premiums.
- There are no medical questions, meaning holders will be covered should they pass away due to coronavirus (as long as you’ve gone through the waiting period).
- Policies can come with added benefits such as digital GPs, counselling and bereavement support services, all of which you’d lose upon cancellation.
Payment protection holiday
LV= has rolled out a three month payment holiday for policy holders affected by the coronavirus outbreak allowing them to keep their cover in place while using the vital lifeline.
Families need to contact LV= to find out if they are eligible to take a break. Those offered the payment holiday will not need to repay the missed premiums.
But many other major insurers have yet to take decisive action to help policyholders affected by the outbreak who need a holiday from paying their premiums.
Our sister title Mortgage Solutions, asked 11 insurance providers if they planned to offer payment holidays to policyholders who were facing financial hardship because of the spread of Covid-19. See the insurance payment protection holiday story for full details.