It’s a common misconception that only those with a mortgage require life insurance protection.
Although it’s not a legal obligation, insurance protecting your rental property is generally speaking a wise move. While you may have policies set up to protect your physical home, such as contents insurance or tenant’s liability insurance, life insurance should be a key consideration if you’re worried about how your family would afford the rent should anything happen to you, especially if you have young children.
Consider the costs that would pile up if you were no longer around, such as rent, household/utility bills, family living costs, education expenses, childcare, debts, as well as the cost of a funeral, which increases each year. For this reason, it can be a weight off your mind to pay a small amount towards a life insurance policy each month and ensure your loved ones can remain in the family home.
Life insurance starts from approximately 20p a day for £200,000 of cover – although the cost of your premium would depend on your age, current health and smoking status. The greater the risk you pose to the insurer, the higher your premium.
What are the different types of life insurance and which is best for renters?
While many life insurance policies are geared towards protecting mortgage repayments, there are many that are well-suited to covering rental payments and any other costs you would like to meet.
There are a growing range of life insurance policies available, so there’s bound to be one that suits your unique needs. Below is a summary of the life insurance policies available that renters may consider:
- Level Term Cover – With level term life insurance, the amount paid out (known as the sum assured) doesn’t change for the duration of the policy term, placing this type of policy as a good candidate for renters. Whether you pass away in the first month of the policy, or the last, your loved ones will receive a fixed amount.
- Decreasing Term Cover – It tends to be that people wanting to cover a repayment mortgage opt for decreasing term life insurance (sometimes referred to as mortgage life insurance), as the pay-out amount decreases throughout the length of the term, mirroring the mortgage balance. Because the risk to the insurer reduces with each passing month, unlike level term, decreasing term cover is usually the cheapest policy option. Both decreasing and level term cover protects you for a set term and if you outlive the policy no pay-out is realised.
- Whole of Life Cover – Does what it says on the tin. You are covered for life, not just a set term. Meaning your family is guaranteed a pay-out when (and not if) you pass away, so long as you have kept up with your premium payments. This can be costly if you start payments when young, so it may be a better option for those in good health, later in life.
- Over 50s Cover – For those aged 50-85, an over 50s plan is generally used in order to cover rising funeral costs (average cost now £4,418). No medical information is needed and acceptance is guaranteed. The monthly premium is calculated based on the size of the sum you would like as a pay-out, with a maximum pay-out of £25,000.
Alternative life insurance options for renters
Family income benefit is a less well-known option, which can serve as a good alternative for many people who are renting their homes.
Family income benefit (or FIB) provides your loved ones with a monthly tax-free income for the remainder of the term if you pass away, allowing them to continue paying bills and meet other costs, (instead of a one-off large cash lump sum as with traditional life insurance).
Some insurers such as Legal & General offer ‘rental based’ options on a selection of their life insurance policies, designed to provide monthly payments specifically to cover rent.
As with decreasing term policies, the risk to the insurer reduces with every passing month and as a result, premiums are usually very affordable.
How can I save on my life insurance premium?
Like any insurance, there are a few steps you can take to make sure you’re getting the best available deal. These include:
- Living a healthy lifestyle – Taking care of your body will allow insurers to view you as lower-risk, therefore reducing your policy premium. Try quitting or reducing key habits that insurers focus on, such as smoking and alcohol consumption.
- Find the right policy – If you’re renting, you don’t necessarily want to invest in a policy where pay-out decreases over time, as your rent will likely remain fixed or even increase. Check these details when comparing quotes. What’s more, the greater your cover amount, the higher your premium – so take the time to calculate the level of cover you need.
- Use an FCA regulated broker – A life insurance broker will be able to discuss what you want from a policy and quickly search through the UK’s top insurers, to make sure you find the right cover, at the best price. Use a reputable broker, such as Reassured.co.uk, to compare quotes from the best insurers, saving you time and money.
- Would a joint life policy work for you? – For couples who both want to take out life insurance, but don’t want to pay a high premium, joint policies can be the perfect solution. A joint policy covers two people but only requires one monthly payment and is usually around 25% cheaper compare with two individual policies. The only ‘con’ to this is that the policy will pay out just once, for whichever party passes away first. This could be an important factor to keep in mind if the remaining partner wanted to get life insurance again later down the line, or if you have dependents who rely on you financially.
The Protection Gap
Generally, a big life event such as buying a house would trigger someone to take out a life insurance policy. However, there has been an increase of people in the UK who are renting their homes, which has caused a gap in protection to develop.
In a recent survey, Sainsbury’s Bank found that just 26% of renters have life insurance, compared to 41% of homeowners. Interestingly, while renters are less likely to have life insurance, 54% said they were worried about the financial impact that passing away could have on their loved ones. This was compared to just 48% of homeowners.
So why aren’t renters taking out life insurance?
Many view money as a stumbling block, as they believe they won’t be able to afford the monthly premium payments.
There are some great options available that can be found through a comparison service, such as Reassured that start from just £10 per month. A quick call will allow an agent to search through policies from some of the UK’s top insurers to find the best options for you. Payments can be as large or as small as you need, depending on the policy type, and the sum you would like to be paid out at the end.