Long Read  

Can income protection work for Generation Rent?

Can income protection work for Generation Rent?
Photo: Pixabay/Pexels

During the past few months of market volatility and rising inflation, many people have had turbulent relationships with money and keeping their homes in order.

Everyone knows they should prioritise long-term outgoings to maintain the roof over their heads, but how many people actually do this in practice?

Overstretched and underinsured

Our latest Wealth and Wellbeing research found that 14 per cent of private renters had no savings at all, compared with 8 per cent of UK mortgage holders, showing that renters are less likely to have a financial safety net in place.

Article continues after advert

Double the amount of renters than mortgage holders (29 per cent vs 14 per cent) would expect to apply for universal credit or state benefits if they were unable to work. 

One could argue that a renter who is experiencing financial difficulty will potentially have a harder time convincing a landlord to give them some breathing space as opposed to a mortgage holder and a lender. 

This needs to change – it presents an opportunity for advisers to have a conversation with their customers about the steps they can take to increase their self-resilience. 

The cost of living crisis will diminish any savings built up as costs continue to rise, leaving 4.4mn private renters vulnerable to financial shocks and missing rent payments.  

From our research, 41 per cent of private renters said that in the event that they were unable to work due to illness or injury, they could only manage to cover their bills for two months or less.

The average amount of time that people could cope without an income ranged from 2.7 months for renters to 4.5 months for mortgage holders. 

64 per cent of private renters are worried about loss of income if they could not work due to an illness or injury, indicating that the unstable nature of renting can fuel existing fears of maintaining home life.  

Are enough renters considering income protection?

Getting on the property ladder used to be a catalyst for many to meet with advisers and consider any long-term financial commitments. That would be the ideal time to discuss how they would cover mortgage payments if they were unable to work.

Now with Generation Rent, there are millions of people who would not think of protection insurance despite being at risk of losing their home if they experienced a financial shock.

Our research revealed that only 6 per cent of private renters have taken out income protection, compared with 11 per cent of those paying off a mortgage. 

Renters are considered to be more exposed to financial shocks, regardless of whether it is a lifestyle choice or due to necessity. Some may be saving towards a house deposit or are simply not looking to buy property in the future.

But the real question is, with rising prices, is homeownership still a milestone for most people, and if not, when will people be prompted to protect their income?

As part of our product development, we worked with financial advisers and found there was a clear demand for simple IP options. In order to improve household resilience and wellbeing, we needed to understand changing work dynamics and non-traditional workers better.