Experts have issued fresh warnings for private renters after research shows that they are especially vulnerable to financial instability. The Deadline to Breadline study by Legal & General shows that the average private renter would be just three days from the ‘breadline’ if they lost their income, in comparison to 23 days for the average mortgage holder. The research is especially concerning as it highlights a gap between perception and reality – private renters mistakenly believe they could last for 30 days if they become too ill or injured to work for a longer period, but the 3-day breadline is far more accurate.
With a high proportion of the current workforce already living in rented accommodation, COVID-19 has only made things more difficult. Since the onset of the pandemic, we have seen a huge increase in the level of rental arrears which only worsened during the second wave when almost 1 in 10 renters fell behind with their payments.
With higher inflation and the rising cost of energy, not to mention a decade-high growth in rents, the situation is turning drastic. As winter approaches and brings with it the prospect of a third wave and/or another lockdown, it’s now essential for renters to put provisions in place should they be at risk of losing their main income stream. This is especially concerning with regards to higher levels of stress, anxiety and poor mental health associated with the ongoing COVID-19 situation and its heavy impact on UK workers.
Plugging the Reality Gap
There are a huge number of myths and barriers preventing income protection take-up but most critical is the fact that many individuals simply do not recognise that they are their own most important asset. It’s much more widely accepted that we insure our home contents and even our pets, but just 17% of renters surveyed by Legal & General identified themselves (and their earning potential/income stream) as their biggest financial asset. Yet just 2% of those private renters surveyed have invested in income protection despite the fact that the average private renter surveyed has just £200 of truly disposable income per month and less than £1000 in savings.
Financial stability is not something that comes easily – it means putting provisions in place to optimise your financial resilience. Many people want to fall back on savings, rely on family or friends or rely on the support of their employer and the state but all of these solutions are likely to be reliable only in the short-term.
Taking the Right Steps
Two key steps need to be taken. First, we need to shift our mindsets and face up to underlying concerns, such as the possibility of serious illness, injury or mental health problems that could impact our ability to work. The L&G research shows that people tend to shy away from such concerns but first we need to be realistic and identify potential issues before we move to the next stage.
The second step we must take is to identify the solutions that will work best to protect us should things go wrong. Factors that may affect this include whether you have previous or chronic health problems. It’s also important to consider what your biggest concern would be in the case that you do lose your income, whether it be the loss of income itself, losing your job or concerns about your family not being financially protected.
Age is also a key factor to consider because it affects the type of concerns you might have and therefore the best solutions to put in place. Protecting our family financially will often be more of a concern to those with children while the impact on long-term health is likely to be more of a worry for the over-55s.
It is especially pertinent to consider things from the age perspective, because Generation Rent encompasses not only young people but many older individuals who are either lifelong renters or have returned to tenancy from home ownership following a change in life circumstances such as divorce or remarriage. Building financial resilience as a renter is somewhat a double-edged sword, as many spend far more of their income on rent than homeowners do on their mortgage – an average of 30% compared with 20%. This leaves far less to fall back on should times get tough.
Against a troubling affordability backdrop and an uncertain future regarding COVID-19, investing in income protection could make all the difference. To find out more and understand more about how protection insurance can build financial resilience, contact our specialists today.
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