I’ve spent a lot of time over the past few months talking to advisors about unlocking protection opportunities in the rental market.
As part of this, we have discussed how most people buy their first protection policy when buying their first home.
For those who sit in the private rental industry, they will not yet, or may never, go through this process, so the chances of them having had a conversation about protection are really very slim. It’s highly unlikely that a counselor has talked to these tenants about how they would cope if they were sick or had an accident and had to take time off from work, or even if they have a partner, whether what would happen if one of them died prematurely?
As you’d expect, we’ve sought to protect tenants’ lifestyles and ensure that, should the worst happen, those monthly rental commitments and household bills can be maintained. Giving extra peace of mind that the tenancy can continue uninterrupted and that they need to move, perhaps to a cheaper property in a perhaps less desirable area, is unlikely to be imposed on them.
But it also made me think that, not all, but for most renters, it’s not a lifestyle choice and they yearn to buy their first home. They are probably saving a lot for a deposit while living in their rented property. If they got sick and lost, or had a very reduced income, unfortunately dipping into their hard-earned savings could become a necessity. What a shame to have to use this money to pay their rent, utilities and shopping bills – the very last thing it was intended for.
This could have the effect of postponing their aspirations to buy even further and with a reduced down payment, making their mortgage application process more difficult for them and their advisor. Could a higher loan-to-value ratio also lead to a higher mortgage rate…most likely.
So in addition to the obvious reason of protecting a renter’s bills and lifestyle, I think implementing a solution based on monthly income, ideally in a menu plan, could also protect his hard-earned down payment.
An ideal solution would be a family income benefit policy based on past life or critical illness, alongside a budget-appropriate income protection policy. This will give you real peace of mind because, in the event of premature death, diagnosis of a serious illness or absence from work due to illness, replacement income is available to replace this lost income and reduce the risk of having to use these security deposits intended for savings.
Shelley Read is Senior Intermediate Development and Technical Manager at Royal London Group