Taking out a mortgage is a traditional trigger to buy valuable cover such as life insurance, critical illness cover and income protection, to meet home loan repayments in case of financial emergency. As house prices skyrocket and millions are forced to rent later in life, this trigger no longer applies. More than thirteen million now live in private rental accommodation, double the number of 20 years ago.
Many “millennials” may rent for life, which means they are far less likely to consider protection, even after starting families.
Brokers are warning that covering the rent is just as important as paying the mortgage, otherwise tenants could end up without a home.
Now insurance companies such as Legal & General are responding, by launching new protection policies for tenants, where cover levels increase steadily, to keep up with rising rents.
While most people are familiar with life insurance, other forms of protection are less well known.
Income protection pays a tax-free monthly sum if you are unable to work due to illness or injury, that continues until you are fit to return. It should not be confused with payment protection insurance, or PPI.
Critical illness cover pays a tax-free lump sum if you suffer one of a list of serious illnesses, such as cancer.
Emma Walker, chief marketing officer at specialist protection broker LifeSearch, said illness and injury can strike anybody, not just homeowners. “The right protection policy can ease the financial strain, allowing you to focus on your recovery,” she added.
This type of cover may be cheaper than many people think, Walker said.
A healthy 30-year-old could buy income protection paying £2,000 a month for premiums of between £15 and £20 a month, from insurers including The Exeter and Aviva.
Cover kicks in after three months of illness, and continues until you recover, or to age 60 if you do not.
The same 30-year-old would pay between £20 and £25 a month for critical illness cover worth £100,000 on a 25-year term, from insurers AIG, Vitality and Zurich.
Premiums rise as you age or have health problems, but you can reduce the cost by reducing the benefit.
L&G’s managing director for distribution, Ali Crossley, said many renters need insurance as they do not have enough savings to see them through a spell of illness or injury.
The L&G Deadline to Breadline report shows the average renter has saved just £936, against £4,313 for homeowners, with lower disposable income, too.
Going without insurance until you buy a home can be a false economy, as premiums rise with age, Crossley said: “If you fall ill, this could eat into your savings or property deposit.”
Rent, at an average of £201 a week, eats up 31 percent of income, and even more in London.
As getting on the housing ladder becomes harder, more than half of private rental households are now headed by someone older than 35.