We are reading about the dreaded credit crunch day in and day out. And while many of us are being affected by it, how many of us feel informed enough to make changes to our lifestyle? Choosing ways to save money that are not going to leave us vulnerable to problems further down the line doesn't have to be a daunting process.

In testing economic times we are forced to consider what are real essentials. While two thirds of people say they have already started to cut back on spending according to research released by Bright Grey.   Less than a quarter of the population say they would be able to rely on their friends and family to make ends meet if they or their partner died or became too ill to work.

More than 1 in 7 people are cutting back on insurance policies of one sort or another, be it for their home or car, and only 20% of Brits say that life insurance is the most important sort of all, so have we got our priorities right? What is really important to consider when we're all looking for ways to cut back?

Join our dedicated webchat, to help you think a bit further ahead in which we will advise you on planning for all possible situations. 

For more information visit www.brightgrey.com

H: Jayne Constantinis, host
E: Edmund Tirbutt, financial commentator
R: Roger Edwards, insurance expert

H: Hello and welcome to the Personal Finance Show, I'm Jayne Constantinis. Day in, day out, it's hard to escape hearing about the economic downturn, but how many of us are confident about managing our finances if the worst should happen? If we were to lose our job, or become too ill to work? Well Bright Grey have done some research which revealed that more than 1 in 10 people are cutting back on insurance policies. So, have we got our priorities right?  What should we really be thinking about when we're looking for ways to cut back? Well joining me today to discuss this and more is financial commentator Edmund Tirbutt and insurance expert Roger Edwards. Welcome to the show, thanks for coming in to talk to us.  And of course we're live so if you've got a question for our guests, type it in the box on the screen, send it in to us with your name of course and we'll get through as many as we can during the course of the show. Roger, 1 in 10 people cutting back on insurance policies – understandable I suppose in these difficult times?

R: Yes well we're in a credit crunch and at the moment people are faced with increasing food prices, increasing fuel prices, increasing petrol prices, and they're having to cut back, and unfortunately they're looking at their bank statements, they're seeing insurance policies on those bank statements and thinking that's something we can stop paying into. And what we're wanting to say is please just hold on a second and have a think about it before you do so

H: Edmund, as an independent commentator – what's your view on what people's priorities should be in these difficult times?

E: Well you've got to sit down and you've got to work out what you can actually afford to be without.  You can probably afford to be without a latte on the way to work, if you're a caffeine addict you can always have it at home before you leave. A lot of people can't afford to be without life cover for their dependents, and they can't afford to be without critical illness cover if they get seriously ill – I mean about 1 in 4 men and 1 in 5 women are going to get a critical illness before the age of 65. And you've got to priorities – if you try and cancel these covers now and think well I'll take it out at a later date, the problem is, is they're going to cost a lot more because you're going to be older, and also if your health deteriorates in the meantime they're going to cost you a lot more still because you're going to get premium loadings. So I think there are a lot of things that we take for granted now, we think that we can go out for a meal whenever we want to, we can go to the pub and buy a round of drinks and if we want to we can drive 100 miles to see a friend for lunch whenever we want to and I think people have got to start questioning whether these are things we can do whenever we want to or whether they're things we've actually got to save up for and treat as a bit of a luxury rather than just an everyday occurrence

H: I suppose part of the problem is that this forces people to think about difficult issues like illness and potential redundancy, and we don't want to think about those things

R: No that's right, and let's be honest we hope these things aren't going to happen to us, but I think you have to sit back and think about what happens if – and the whole of your lifestyle, your bills, your mortgage, your day-to-day living depends upon the income that you earn. And you need to sit down and think what happens if my income stops, and what could it be that stops my income – it could be unemployment, it could be sickness, and in a worst case scenario it could be a premature death. And you need to ask yourself what would happen to the family – what would happen to our finances if the salary stopped coming in, and worst case scenario is it could be that you might lose your home, you might have to downgrade your lifestyle. Making sure that your insurance policy is still in place means that if that eventually happens, you've got that financial security. So when you're sitting there trying to find a way of cutting back on your expenditure today, and you think that the insurance policy is the thing to go for, you really need to have a think about the possible future consequences of making that decision now

H: Ok, let's – you know – let's take – go to the kitchen table, the family's sitting around, head in hands looking at the bank statement – what can they do? Because people do have to cut back and they do – we – why are we saying they? We do have to save money

R: Yes I think at the moment we're a society for the last two decades have become used to luxuries, and you look at your everyday expenditure, you know you may – as Edmund said – you may pop into a high street coffee shop on the way to work every morning, spend a couple of pounds on a latte – you might get a carry out meal once a week, or you may go out for a meal once a week, you may go to the cinema a couple of times a week – and we've become used to these luxuries. If you were to add up the cost of all those luxuries over the course of a month you'd be probably spending two or three hundred pounds on that. Now even if you were to cut back 10% of that, £20, £30 – and make sure that that is what can fund the life and health policy, then if the worst happens at least you've got that financial security of a lump sum or a replacement income, and of course you can pay – carry on paying – the other 90% of the luxuries that you've become accustomed to in the first place

H: So we're using this word "luxury" quite a lot aren't we? Do you see these kind of insurance policies as a luxury, or a necessity?

E: I think it depends on the individual circumstance. I think for some people, they are a necessity, yes. If somebody doesn't have any dependents for example, there may well be no need for them to have any life cover, but they could still need to have critical illness cover or they might want to have income protection to give them an income if they go ill, because they've still got to take care of themselves, so it's all on a horses for courses basis, but I would say if you're going to try and cut back on insurance there are probably other insurances that could go first. Research shows that over 50% of single people are actually insuring their mobile phones before they insure their health, which I just find amazing, and over 25% of families are insuring their central heating before they insure their health, which I find extraordinary, I mean why not just have a spare radiator in the cupboard which you pull out and put on – you're still going to be able to live and carry on. It might be a little bit uncomfortable for a bit, until you've got the cash to fix it.  So it's all about establishing your priorities, and I think that it's going to be a gradual change – we've been going on about this for two or three decades now, taking things for granted.  I can't remember the last time when I – I mean just virtually everything I have I just see as something I deserve, I'm going to have it, and I've never really had to make hard decisions about prioritising expenditure, and you know I'm working, I'm reasonably successful even though I'm having to sit down with my wife and we're having to look at what we're spending our money on. In fact research by Bright Grey is showing that two thirds of people are having to cut back on something now. So I would – we were doing something, we were paying a tiny £90 a year for the local tennis club which is incredibly good value, but then we thought well when did we actually last play tennis, even though it's 100 yards away, we haven't had time, we've been too busy. In fact didn't cut back on it, but I'm sure we would do before we cut back on health insurance

R: And we're not being killjoys of course, we don't want people to stop doing everything that they enjoy and stop buying things that they like. What we're just saying is let's prioritise so that a little bit of money that we usually spend on luxuries is just put aside for the insurance that will allow us to continue to do what we like in the future

H: And what about – ok cutting out the latte on the way to work is one thing, but what about actually looking at the policies that you have in place and making sure that you've got the right policy, perhaps switching to a more cost effective plan. How do people go about doing that?

E: Well the best way is to go and see an independent financial advisor, for sure because they can give you an independent view and take a view of your overall financial planning.  They can review what you're spending on, life and health insurance n the context of other expenditure on other things, including your savings etc. and they can also give you an independent view on which are the best health insurers and which are the best life insurers, so it's not just who is the cheapest, I may add, because there are a lot of bells and whistles that can be very valuable on some of these policies, and it's also very important to get an insurer whose going to pay out at the claim stage, and some are better at doing that than others. The majority, in fact all of those that any decent IFA would recommend you will have no problem in having an honest claims payment, but when you hear about these horror stories that occur, it's invariably somebody who hasn't gone through an IFA, and they've gone direct to the insurer, and they tend to have a slightly different way of doing business

H: And for people who don't know where to find a good independent financial advisor, where do they begin?

E: Sure. They go online to www.unbiased.co.uk, they type in their postcode, and then they ask for personal protection, and they will get a list of IFAs in their area who can advise on protection, and if they want to go a stage further and get a real expert, they can actually ask for IFAs who have got specialist qualifications in protection, so it's a pretty good way of getting competent people

H: Great

R: And what an IFA would also say to you as well is that there's a perception amongst the public that this sort of insurance is expensive, but actually the price of this sort of cover's been coming down over the last decade and in fact life insurance and income protection these days is probably cheaper than it's ever been and a couple in their late 30s and early 40s can still get about £250,000 of cover for between £10-£15 a month and that's not a great deal of money for such a huge sum of protection

H: Yes. Let's – we're getting lots of questions in, let's just have a look at one from Liz Procter.  She works in banking, and given that she hasn't been here for long, she's worried about her job – you know, security – trying to find ways to curb spending, doesn't have contents insurance but does have a critical illness cover on her flat – she says "I'm young and healthy, maybe this should go."

R: One of the things about life and health insurance is it's good to take it out when you're young and healthy because obviously the premium will be cheap, and again you could sit back and think "I could save £20 or £30 a month by stopping this cover" but you also need to think about what happens when you're a little bit older and possibly when your health isn't as good. If you stop the cover today and then want to take it out again later on, and you're older and possibly your health isn't as good, and the premium that you would pay in the future would be a lot higher than it is going to be today. So again if you can find some way of continuing to be able to afford what you've got today by making a few cutbacks elsewhere, then ideally you know you should probably keep that cover in place. Again an independent financial advisor would be able to give you other options if you needed them in terms of maybe swapping to a cheaper policy, or one that offered different options ,but if it's possible I think ideally you should keep that policy going. As for contents insurance, again you need to weight up the priorities – what have you got in the house that's important to you that needs to be insured, that you could lose in a fire or a flood or something like that. So again it's about priorities and if it's a very important priority for you then you can make the economies somewhere to enable you to pay the premiums

H: But it's easy to see why people are doing the business of looking at the bank statement, and just identifying those lump sums – it's easy isn't it to put a pen through them rather than the "well how much a month are we spending on gym membership" or you know even not such luxuries as gym membership but lunches out and so on, and in fact Hazel – again it's a sort of priority question – she's taken holiday insurance out every year, not once had an accident. Over the years probably spent more on it than on the holidays themselves. Does she really need it?

E: The answer is I wouldn't go on holiday anywhere without it, I mean what really matters with the travel insurance is the health cover on it. I don't think – I wouldn't be too bothered at all about whether I had baggage cover, whatever, because I wouldn't be carrying anything terribly valuable I don't think, but if you go to certain countries, like if you went to America, without any health insurance – travel insurance – you'd need your head examined, because you could literally lose your shirt. I mean if you had an operation in America, by the time you came back you'd have to sell your house to pay the bill, there's absolutely no doubt about that, so it's something - I mean my aunt actually had an accident, she was in somewhere like Cyprus in a hotel. She broke her hip in the swimming pool and she had to be flown back on a plane, they had to turn the last 6 seats of the plane to allow her to be on a stretcher etc – she had the cover but it would have been a huge family bill if she hadn't, and I would – if I had a choice between going on holiday without travel insurance or not going on holiday, I just wouldn't go on holiday at all

H: Really?

E: Apart from if it was in the UK when I think you're reasonably safe

H: Yes ok, well that's an unequivocal answer. Paulina has sent us a question "as a family we're struggling at the moment like many others. Our budget is such that we can't afford both house and life insurance. We think house insurance is a priority – your advice?"

R: Again I think buildings insurance is very important but contents you need to have a look at what's valuable, is it possible to replace a television set or something like that if it unfortunately got stolen, could you afford to replace something that costs a couple of hundred pounds. Then you've got to ask yourself how much would it cost to replace your salary, and if the cost of that is £10 or £20 a month for a life assurance policy, then again you can see how valuable that can be.  So again you need to weigh up those decisions and the value of the thing that you're insuring. Again I think it's very important in circumstances like this to talk to an independent financial advisor who can say well this inanimate object, the television set, is going to cost £300 to replace, yourself and the salary earning potential that you have over the rest of your working life could be several hundred thousand pounds worth of salary – what happens if that stops?  It's easy to replace the television, it's a lot harder to replace you

H: Because it's such an emotive subject, all this business about what if I become ill or what if it's a premature death and so on, it's almost like we need to divorce ourselves from the emotion and almost do a little sort of personal balance sheet don't we about what – it's the what if question isn't it we need to keep asking

R: It's almost like a family – as you've already said – sitting round the kitchen table, it almost becomes a kitchen boardroom table and you're almost having a family annual general meeting where you're making these little finance decisions

H: Yes, yes. 

R: What's important to us, what can we cut back on, what's absolutely non-negotiable – we don't want to cut the gym membership because we really like going to the gym – fine, let's keep paying that but cutting back on something else in order to allow us, going forward, to make sure that we're fully protected

H: Do you think , I mean just widening it a little bit, this business of the last 20 years say that we've all become rather lazy about budgeting, because we've just believed we can have anything whenever we want it, and most of us have – this is almost getting back to a different era isn't it when people did do that, what can we as a family afford?

E: Yes. I mean when you're trying to give somebody a Christmas present nowadays it's impossible to think of something they haven't got, absolutely impossible – everybody's got everything so you end up giving them you know another gift voucher or something so they can go and choose their own, but I mean I'm not sure it's going to do too much harm if we have to go back to the days when somebody actually gets something that they want for Christmas, and that's the sort of prioritising –

R: Maybe we should be giving them a life insurance policy!

E: Well I think – that wouldn't be a bad way – that would be a good commercial way, if you could come out with a way that somebody could do that, in a way that – I mean obviously they can't do it because the person's got to fill in the application form, but as a sort of a kind of a – this could only be used to take out an insurance policy, subject to underwriting, that might be quite a good commercial move

E: My son would be very disappointed –

H: No I was thinking that too

E: Some people now are giving – giving their grandchildren, they're putting it in stakeholder pensions and things for when they get older, so it's not a bad idea. Particularly if you could do a lump sum one

R: Absolutely

E: Whereby somebody could pay a few thousand pounds upfront and that would cover the child until a certain age, that would be quite a nice present

R: But then again it's an interesting comparison because you will spend £50 on the latest toy for your son, or £200 for the latest games console, and that's worth a couple of hundred pounds plus the value of the games. Again £20 a month, £250,000 worth of life cover, or £50 / £60,000 worth of critical illness cover. In real terms that's great value for money

H: That's a bigger present for your child

R: Absolutely

H: Than the game – and of course this is going to become especially relevant as we approach Christmas, and families are going to be making those sorts of decisions about what size of gift is little Freddy going to have this year

E: Well they've got to be brave and they've got to stand up and do what's right for a change, instead of doing what's easy, and I remember when I was at school we had the son of the governor of the Bank of England there and he refused to allow his children to have a television because he felt it wasn't good for them because they ought to be playing chess and doing bridge, and that's the thing and they became very intelligent, successful people as result, but I'm sure they weren't terribly happy about it, and we used to think it was a little bit odd, so why should you have to give your children what everybody else does?

H: Final slightly frivolous, not that it's a frivolous subject at all, but Demelza has made a comment – she never takes out insurance on TVs but got her cats insured which she knows is a luxury, but they make her happy. Well she's made a – she's prioritised hasn't she, doesn't matter if the TV goes out the window, literally but the cats –

E: Well I think that's a very sensible priority because you've got an emotional attachment to your cat, I'm not sure that I have one to my TV particularly. If my TV breaks down I chuck it away and I get another one, and I don't sort of go to the funeral

R: But in the same way you've got an emotional attachment to a cat or a dog you should also have an emotional attachment to your family, if you've got one, and showing that emotional attachment again is making sure that you're financially protected going forward

H: Yes

R: And the reality is of pet insurance you are insuring against a financial cost of having to pay the vet's bills and the treatment that the cat might need

H: Yes which can be huge

R: In a similar way what you're doing for yourselves

H: We all need to be a bit more sensible, and we don't like that word do we because we haven't had to be in the last two decades. Just tell me, very briefly because we're nearly out of time, about the calculator that you've got on the - on your website?

R: That's right on the Bright Grey website we've got this idea on how can you cut back a little bit on your expenditure for luxuries, and we've got this calculator where you go in and you say how many coffees are you buying a week, how many bottles of wine, how many carry-outs, how many meals out, cinema trips, and you know how – it's amazing how much it adds up to. Several hundred pounds a month. Just try it, go in there, type in these expenditures and then just say what could I do with 10% of that? I could really protect my family and then I'd be able to afford the rest of it and I'd be fine if the wrong thing happened

H: Can we take wine out of the equation?

R: Wine's fine

H: Is wine alright?  Ok, thanks very much. Thank you very much, really – really sensible and useful advice and I think we all need to think a little bit carefully about our priorities don't we? Thank you, very interesting

R: Thank you

H: Thank you for watching and brightgrey.com is the website to go to for that calculator if you're interested in doing that. Thanks for watching, see you again soon. Bye bye