By 2025, half of adults under the age of 40 will be renting privately, according to a study from Legal & General – and gone are the days when renters were simply young homeowners in waiting: today, 35 per cent of tenants are over the age of 45.
Many of these renters could also be described as tomorrow’s mortgage customers; not just first-time buyers, but sometimes those who own a house and rent themselves. Both have a need for protection, and there are now long-term protection products available to brokers that specifically focus on renters.
For most tenants, rent is their biggest monthly expense, and in the past 10 years the number of people living in rented accommodation has doubled. Currently, rent accounts for, on average, 40 per cent of a tenant’s income – double the amount a homeowner spends on the mortgage. This is much higher for those renting property in London, where rent accounts for 65 per cent of their monthly earnings.
While homeowners may see the value of financial protection to cover their mortgage costs should things go wrong, renters often overlook this. According to research by consultancy Hymans Robertson, only 7 per cent of renters have individual income protection.
Most people know about life cover, which pays out if you die. But what about insurance that pays out if you are seriously ill or can’t work? The pandemic has made people think about their financial resilience.
IP pays a tax-free replacement income if you cannot work. It can pay out for a few weeks, months or years, or even until retirement. And most people can insure pretty much all their take-home pay.
Some IP plans are designed for renters. With L&G, for example, tenants can increase the amount of cover if their rent increases, they relocate or they change their tenancy agreement, without the need for underwriting. What’s more, if tenants leave the rental market for the property ladder, some policies can be transferred without a new medical underwriting plan, enabling them to protect their new home and their investment.
Roy McLoughlin is associate director at Cavendish Ware and co-chair of the Income Protection Task Force
