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You might want to save money but cancelling insurance policies can cause a lot of problems.
When you’re trying to free up money to put towards your debt repayments, you might look at cutting back on some of your bills. But if you’re tempted to cancel insurance policies to free up some cash, this might be a bad idea.
It’s easy to feel like scrapping your insurance policies will be a quick way to save money, especially if you’ve never claimed on them. In fact, you might even think insurance is a waste of money. Let’s take a look at why this isn’t true and why some insurance policies are essential.
Why you need insurance
If you’re a driver, you’ll have car insurance as this is something that all drivers must have. But if you’re considering cancelling it to save money, think again. You’ll be breaking the law if you drive without at least the legal minimum of third party car insurance.
Third party insurance protects other drivers if you have a crash and will pay out for any damage to their vehicle or to people that are injured in an incident – that’s why you legally have to have it. However, with third party insurance you’d still have to cover the cost of repairs to your own car.
Cancelling your buildings and contents insurance could also be a mistake. In fact, if you’re a homeowner, it’s likely you have to have buildings insurance as part of the conditions of your mortgage. You won’t need building insurance if you’re a renter – your landlord will cover this.
Contents insurance might not be a requirement, but it’s still a good idea to protect your belongings. After all, if your kitchen flooded and your fridge or cooker broke, you might not be able to afford to replace it – you’d want to claim on your insurance policy. Not having insurance could make a bad financial situation worse, especially if you had to borrow more to replace the item.
If you own your own home and you’ve got dependents, you might have life insurance. This is a policy that pays out if you die so your family don’t have to cope with the mortgage payments alone. It’s definitely worth keeping your life insurance – you want to make sure that fi the worse does happen, your family won’t lose their home.
Risks if you cancel
As we explained above, you need car insurance to drive – it’s the law. If you decide not to pay it, you could get a fine or even a ban from driving.
The police could give you a £300 fine on the spot, as well as six penalty points on your licence. And if the case goes to court, the maximum fine is unlimited. If you’re already struggling to pay your debts, you won’t want an extra bill to have to pay on top of this – that’s why you shouldn’t avoid your car insurance.
It might not be against the law to cancel your buildings or contents insurance but that doesn’t mean it’s a good idea. After all, if anything goes wrong with your home, you don’t want to have to foot the bill.
For example, if a flood destroyed your home and you didn’t have contents insurance, you wouldn’t have anywhere to live and your possessions could all be ruined. Even if you rent your home and could find a new one, you’d still face the cost of replacing all your belongings.
Should you cancel any insurance?
We’ve taken you through the main types of insurance you’re likely to have but are there any insurance policies you should cancel? If you were mis-sold payment protection insurance (PPI), you should definitely look at reclaiming this. The money you claim could help towards paying off your debts.
You can reclaim PPI yourself but if you don’t feel confident doing this, you can use a claims management company. There’s still time to claim for mis-sold PPI, so it’s definitely worth looking into.
It’s also worth checking you’re not paying to insure something twice. For example, your home insurance might cover your mobile phone when you’re out of the house, so you might not want to insure it separately. Just keep in mind that if your phone breaks and you claim on your home insurance, your premiums will probably go up when you renew.
What else can you do?
Even though you probably shouldn’t cancel your insurance, there are lots of other things you can do to save some extra cash. Our Money Saving blogs have some handy tips when you’re looking to cut back.
But if you’re at the stage where you’re thinking of cancelling insurance or other important bills to cope with your debts, it might be time to seek some help. It might just be a part of the bigger problem and could show that you’re not able to realistically maintain your payments at their current level.
You can get advice about coping with your debts from the Money Advice Service, or you can get in touch with our debt advisors using any of the options to the left of the blog. There are a range of debt solutions available and they will be able to tell you whether there’s one that’s right for your situation.
by Emily BancroftBack to blog home