Jonathan Hall, Scottish Widows Protection Specialist
It's not only those with mortgages who are vulnerable to illness or injury, tenants are a prime target market for income protection.
Just like the house buying market, the UK private rental market has been volatile in 2024. Consumers' budgets are stretched and rent has been one of the many costs of day-to-day life that have increased for many people. With the rising cost of living and interest rates preventing millions from being able to afford their own mortgages, the trajectory of the rental market could play a pivotal role in the lives of many people across the UK for years to come.
The latest UK rental statistics from USwitch show that almost a fifth (18.8%) of UK homes are privately rented, as of 2023*.
‘The flexibility of income protection to adapt to changing circumstances can be a key talking point’
As the cost of buying a house is unattainable for many, the demand for rental properties has understandably increased. With almost three quarters (74%)* of landlords citing the increase in costs of running a property as the main reason for increasing rental payments, the median average cost of rent in England was £850 between October 2022 and September 2023. This represents the highest figure to date and is a 3% increase on the average recorded between May 2022 to April 2023 (£825)*. Just paying the rent, for many, is therefore quite a challenge.
Renters are becoming increasingly vulnerable.
Saving is very difficult for those in the private rental market as rental payments eat up an increasing part of the monthly income. In fact, some data sources suggest that the average UK tenant must spend 39% of their income on rent**.
Average savings levels of £3,636 for those aged 18-24 and of £3,748 for those aged 25-34*** are unlikely to last long if they lose their income. It is unsurprising to find, then, that more than half (57%) of renters would not be able to afford an unexpected expense of £850. Being unable to meet an emergency payment demand can be seen as a proxy for financial vulnerability. **
Helping renters see the benefit of Income Protection
Advisers can support renters with understanding the limitations of Statutory Sick Pay and the importance of having a back-up plan should renters be unable to work on health grounds.
This will allow you to help your clients understand the differences between Life Assurance, Critical Illness Cover and Income Protection as they are easily confused.
The inability of critical illness cover to pay out for stress-related problems, bad backs and other non-life threatening conditions should, in particular, leave renters in little doubt that income protection could provide a different type of security.
The flexibility of income protection to adapt to changing circumstances can be a key talking point in showing clients why income protection may be the right solution for them. Also, by protecting their income, it can also help safeguard any deposits your renting clients may have been saving towards a first home.
Advisers can also highlight the product's ability to pay out as soon as the deferred period has elapsed, even if the claim is still being assessed, which gives further peace of mind around payment of claims.
‘Generation Rent'
This year, LifeSearch & Canopy research revealed that less than 1 in 10 (8%) of renters had income protection.****
With renters generally entering into 12-month contracts at a time, statutory sick pay will rarely be enough to cover the costs making this sector enormously vulnerable and therefore a good opportunity. Just spreading the overall message about the benefits of income protection as widely as possible should certainly help, but there is scope to seek out those channels that renters specifically engage with.
It's also possible that this demographic could benefit from a slightly different sales approach. Insurance generally may not feature heavily on their radar. They do not have to secure buildings insurance for their property, may not bother with contents cover, and may well have a more pronounced ‘live for today' mentality.
Rather than present income protection as an insurance policy with some useful bells and whistles, it might be more effective to position it as a suite of valuable lifestyle benefits that also includes an insurance mechanism.
The added-value features that income protection providers now include are so significant that a renter might well be tempted by the idea of paying a monthly premium to secure access to everything from virtual GP services, mental health support and regular physical health MOTs to blood tests and dietary advice from nutritionists.
The fact that they have £1,000 a month or so of income protection cover thrown in as well to safeguard against something they probably think is never likely to happen to them could well be a secondary consideration.
Find out more about Scottish Widows Income Protection
Sources:
*USwitch.com, UK private rental statistics 2024
**Intergenerational Foundation, 8th November 2023
***Finder, Jan 2024
**** LifeSearch & Canopy, July 2024
