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.
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.
There is an overlap between renters and flexible workers as they can be more prone to financial shocks, but traditional IP does not always work for them.
More than 4.7mn non-traditional workers are currently in the UK. This includes freelancers, sole traders and zero-hours workers. Vulnerability to income shocks has become even more pronounced and exposed since the pandemic struck.
In 2020, 70 per cent of non-traditional workers surveyed were most interested in guarantees that payouts would cover their mortgage or rental payments.
What are the common obstacles to protection that renters experience?
The main barrier to opening a protection policy for renters is usually proof of consistent monthly income or minimum hours worked, which for many self-employed people is not possible.
Our research showed that financial advisers found it challenging to find the right products for people with varying earnings or hours worked.
Those who maybe work zero-hour contracts, have multiple jobs or are in the gig economy will find it hard to prove a consistent income every month.
More than half (53 per cent) of advisers recognised that proving income is a barrier to writing income protection business.
Traditionally, income protection bases the benefit amount on a percentage of the client’s earnings, typically 60 per cent. Financial assessment is then carried out at claim to make sure that it is valid.
Income protection plans specifically for renters need to be flexible to reflect the nature of changing rents and potentially moving properties several times over.
Protection needs to adapt to the changing needs of our customers as renters and those with unconventional working arrangements are left underserved.
For renters with traditional working arrangements, thankfully there are now more renter IP policies in the market to choose from with shorter claim periods. But a shift in mindset needs to happen where people can make protection work for them to boost their financial resilience.
Support is always more than just a claim, with add-on services and other features that come with IP policies proving invaluable.
Limitations of renting and financial resilience
In June, the government released a white paper giving more rights to renters, including the end of no-fault evictions. While this shows that the problems of Generation Rent are being addressed, it also means that more people will be forced into arrears who ordinarily would not be.
Part of being a good tenant is having a back-up plan in place to avoid owing months of rent payments. For those who may not be in a position to save large sums, it would make more sense to pay small monthly premiums to safeguard your home rather than try to go it alone.
Our research found that 3 per cent of private renters said they have fallen behind on their rent payments in the last three months, while 14 per cent said they could only last less than a month if they were unable to work.
The fragile balancing act shows that many renters may not have the confidence to prepare for financial shocks or major life events.
While growing awareness is a good start, we should be doing more to encourage renters to take up income protection – that way, they can reduce the risk of missing rent payments and losing their home during the cost of living crisis.
The pandemic may have prompted more people to think about these things, but younger people especially are in danger of thinking, ‘It couldn’t happen to me’.
It does not need to be complicated; protection for renters just has to suit the client’s best interests in keeping a roof over their head when things get difficult.
Mike Farrell is protection sales director at LV
