The worst time to cancel your income protection insurance

When the cost of living starts biting, most households begin looking for expenses they can trim. Subscriptions get cancelled, grocery habits change, and insurance policies often come under review. Income protection is one of the covers people sometimes consider dropping to free up some cash. On the surface it seems reasonable. In reality, it can be one of the riskiest cuts you can make.

Your income is what keeps everything else moving. It pays the mortgage or rent, covers groceries, utilities, school costs and the everyday expenses of life. If illness or injury stops you from working for a period of time, that income can disappear very quickly. Without income protection, the financial pressure can build fast at exactly the moment you are dealing with a health issue.

During a cost of living crisis this risk becomes even more significant. Many households are already feeling the squeeze and savings buffers are often smaller than they would like. That means there is less room to absorb a sudden loss of income. Income protection is designed to step in during those moments and provide some breathing space while you recover and get back on your feet.

Another thing people often do not consider is what happens if they try to get cover again later. Insurance is based on your health at the time you apply. If your health changes after cancelling your policy, an insurer may add exclusions, increase the cost of cover, or decline your application altogether. What starts as a temporary saving can sometimes turn into a permanent loss of protection.

The good news is that cancelling the policy is not the only option. In many cases there are simple adjustments that can make the cover more affordable while keeping that important safety net in place.

One option is to hold income protection through your superannuation fund. This means the premiums are paid from your super balance rather than coming out of your household budget each month. While it does slightly reduce your super over time, it can help ease pressure on day to day cash flow.

Another strategy is extending the waiting period before benefits start. Moving from a 30 day waiting period to 60 or 90 days can noticeably reduce the premium. If you have some emergency savings that could cover the early weeks, this can be a practical compromise.

You might also review the amount of cover you hold. A slightly lower benefit may still cover the essential expenses while making the policy more manageable.

When money is tight it makes sense to review spending carefully. But removing the protection that safeguards your income can create much bigger problems later on. Tweaking the policy rather than cancelling it is often the smarter move.

If you are thinking about making changes to your income protection, it can help to talk it through first. To explore your options, contact Sean Robbie at Success Planning by emailing info@successplanning.com.au. A quick chat could help you keep the protection you need while easing the pressure on your budget.

This article contains general advice only and does not consider your personal circumstances. Please consult a financial adviser before making decisions.