My partner and I don’t own a home, and will continue to rent for a few more years to save up for a deposit.
We don’t have any kids yet, but it’s something we’ll be thinking about in the next year or two.
Since we rent and don’t have any dependents, is it really necessary to have life insurance?
You may be young and careless and have no dependents — but that doesn’t mean you should ignore having some kind of peril coverage, according to insurance experts.
We prefer to use that premium to save for a deposit on a house or when we have children, at which time we see the most sense in having a life cap.
I’ve always been told that life insurance is something you get when you own a home but maybe there are products for renters we could consider?
If so, are there any affordable policies and should we consider a single product or a joint product?
This is Money’s Angelique Rosica responds: Understandably, you want to save money and avoid paying life insurance premiums—something many see as grudge buying.
Keeping a deposit for a home is not easy. It doesn’t say where you live but according to the latest Halifax research the average deposit paid by first time buyers in 2020 was £57,278.
But have you thought about the impact on family finances if one of you dies, is injured or becomes ill at work?
Can the other live on only one income? Two advisors we consulted warn that there is no type of risk hedge. That’s what they had to say.
Nikita Davis, Insurance Adviser, Cavendish answers: Saving a home deposit isn’t easy, and it’s very reasonable to question the need for life insurance and whether those hard-earned savings could be better used toward the price of your new home, rather than being spent as insurance premiums.
There is certainly a perception that life insurance is only necessary if you have children, or if you have significant debt like a mortgage, and it is true that most life insurance policies are purchased by people in this type of situation.
However, I advise against excluding life insurance. Even under your circumstances—rent, childless—life insurance can still provide valuable financial protection should the worst happen to you or your partner.
Nikita Davis of Cavendish advises not to rule out life coverage, even if you’re a renter
If you die, will there be a financial impact on your partner? Think about things like funeral costs or loss of income.
Could this effect extend to your partner who struggles to pay regular bills, such as rent? If the answer to these questions is “yes,” then it may be worth considering life insurance.
It’s also worth knowing that life insurance policies can be tailored to renters, and in fact, some insurance companies offer specific life insurance products for renters.
These policies pay a monthly interest to the family, which can be used to pay rent in the event that the deceased had no income. Many products also come with flexibility to increase the benefit amount in the event of a rent increase.
It is difficult to determine whether you need an individual or joint policy without knowing your financial circumstances, and this is where I recommend you get some professional financial advice.
During this process, the advisor will get to know you and your finances and will research the entire insurance market to find the best type of policy that will fit your needs and budget.
Some statutory, general, and some other insurance companies have a range of policies designed specifically for renters, that allow you to increase the amount of coverage in the event your landlord raises the rent.
Ben Burgess, Senior Consultant, LifeSearch
Even if you decide not to go ahead and purchase a policy, we always think this is a useful exercise and helps our customers better understand the options available to them.
You should also know that there is no cost to obtaining financial advice on products such as life insurance.
Thinking beyond life insurance, I would strongly consider individual income protection policies for you and your partner.
In the event that you are unable to work due to illness or injury, these policies will provide a non-taxable monthly income – these policies essentially replace a large percentage of your lost paycheck.
The money can help cover your rent payments, while also preserving savings and keeping you on track for your home deposit.
Ben Burgess, senior advisor at LifeSearch, answers: I agree that right now, spending a large portion of your budget on life insurance alone may not be the wisest way to protect yourself financially.
Once you have children or buy your first home, life insurance can become a necessity, but currently it would be more appropriate to focus on protection against illness or injury. Illness and injury can strike anyone, not just homeowners and parents.
Income protection and critical illness policies seek to take the financial burden off patients or injured people, along with their partners, so that the focus remains on recovery. And with most plans, you’ll have insurance coverage anyway.
Ben Burgess at LifeSearch says you can make necessary adjustments to existing coverage or withdraw additional policies if you need to
Critical illness policies are paid upon diagnosis of a specific illness or death, whichever occurs first.
For various reasons, you and your partner are often advised to follow your own “single life” policies rather than a joint one.
A good starting point might be to look at a year’s worth of your annual pre-tax earnings and run the period up to retirement age.
If you are diagnosed with a serious illness during the term of the policy, you will pay a premium to employer-provided sick pay or statutory sick pay from the government.
Linking the payment to your annual salary or bills for a year allows you to create a policy that will make all the difference in your time of greatest need. It will not be very expensive, and will allow you to continue saving for your deposit or for starting a family.
Income protection is another viable option. This pays a monthly amount that is tax-free upon diagnosis of injury or illness, provided the condition was not pre-existing and that it prevents you from being able to work.
It does not cover redundancies or unemployment. If you don’t get sick pay or are only entitled to statutory sick pay, this is an attractive option that covers you from broken bones all the way to serious illness.
If you have significant sick pay or savings, this is a low-cost and effective way to increase those amounts.
Some statutory, general, and some other insurance companies have a range of policies designed specifically for renters, that allow you to increase the amount of coverage in the event your landlord raises your rent.
You do not have to complete another application and there are no additional underwriting requirements from year to year.
Life, critical illness, and income protection insurances are all priced according to your age, health, occupation, and family history, so it’s a good idea to put something comprehensive and cost-effective in place now when you’re young and healthy rather than waiting until you have a baby or buy your first home.
Your protection needs will change as your family and financial responsibilities grow, and cover can change in the future, too.
As a result, you can make necessary adjustments to your existing coverage or take additional policies if the need arises.
Questions renters should ask to determine if they need life insurance coverage
1. What would happen if either of you lost your income for a few months?
2. How long will your savings last after the death of your partner?
3. Would you be happy to use your savings to help you pay rent after the death of a partner, and would this affect the surviving partner’s ability to save for a deposit and purchase?
4. Can you cope financially if you are too sick or injured to work?
“Think of something as simple as a broken arm that prevents you from doing your day job for months—the last thing you want is for you to start eating into your hard-earned home deposit fund in order to cover regular bills,” says Nikita Davis, Insurance Consultant, Cavendish. Income protection insurance can help avoid this potential situation.
This is five of the best protection insurance deals
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