My partner and I don’t own a house, and will continue renting for a few more years to save up for a deposit.
We don’t have any children yet but it’s something we are considering in the next year or two.
As we’re renting and don’t have any dependents, is it really necessary to get life insurance?
You may be young and carefree with no dependents – but that doesn’t mean that you should disregard having some kind of risk cover in place, according to insurance experts
We’d rather use that premium to save up for a deposit on a house or for when we do have children, at which time we see more sense in having life cover.
I’ve always been told that life insurance is something you get when you own a home but perhaps there are products for renters that we could consider?
If so, are there any affordable policies and should we consider a single or joint product?
Angelique Ruzicka from This is Money responds: It’s understandable that you want to save money and avoid paying premiums for life insurance – something that’s seen as a grudge purchase by many.
Saving a deposit for a home isn’t easy. You don’t say where you live but according to Halifax’s latest research, the average deposit paid by first-time buyers in 2020 was £57,278.
But have you considered the impact on the household finances should one of you pass away or get too injured or ill to work?
Could the other survive on just one income? Two advisers we consulted cautioned against not having some kind of risk cover in place. Here’s what they had to say.
Nikita Davis, insurance adviser, Cavendish responds: Saving a house deposit is not easy, and it’s very reasonable to question the need for life insurance and whether those hard-earned savings could be better used towards the price of your new home, rather than spent as insurance premiums.
There’s certainly a perception that life insurance is only necessary if you have children, or a large debt like a mortgage, and it’s true that most life cover policies are purchased by people in this type of situation.
However, I’d advise never to rule life insurance out. Even given your circumstances – renting, with no children – life insurance can still provide valuable financial protection should the worst happen to you or your partner.
Nikita Davis from Cavendish advises never to rule life cover out, even if you are a renter
If you passed away, would there be a financial impact on your partner? Think about things like funeral costs or the loss of income.
Could that impact expand to your partner struggling to pay the regular bills, such as the rent? If the answer to these questions is ‘yes’, then life insurance may be worth considering.
It’s also worth knowing that life insurance policies can be tailored for renters, and in fact, some insurers even offer specific life insurance products for tenants.
These policies pay out a monthly benefit to the family, which can be used to pay the rent in the absence of the deceased’s income. Many products also come with flexibility to increase the benefit amount should your rent increase.
It’s hard to say whether you need a single or joint policy without knowing your financial circumstances, and this is where I’d recommend you getting some professional financial advice.
During this process, an adviser will get to know you and your finances and will research the whole insurance market to find the best kind of policy to suit your needs and budget.
Legal and General and some other insurers even have a range of policies specifically designed for renters, which allows you to increase the amount of cover should your landlord raise the rent
Ben Burgess, senior adviser at LifeSearch
Even if you decide not to go ahead and purchase a policy, we always think that this is a useful exercise and helps our clients to better understand what options are out there for them.
You should also know that there’s no cost to get financial advice on products like life insurance.
Thinking beyond life insurance, I would strongly consider individual income protection policies for both yourself and your partner.
These policies would provide, in the event that you couldn’t work because of illness or injury, a monthly non-taxable income – these policies essentially replace a large proportion of your lost salary.
The money can help to cover your rental payments, while also maintaining savings and keeping you on track for your house deposit.
Ben Burgess, senior adviser at LifeSearch, responds: I would agree that at this moment in time spending a large portion of your budget on life insurance alone may not be the most prudent way to protect yourself financially.
Once you have children or purchase your first home, life cover could become essential, but currently it would be more appropriate to focus on illness or injury protection. Illness and injury can befall anybody, not just homeowners and parents.
Critical illness and income protection policies seek to take away the financial burden on the ill or injured, along with their partners, so that the focus can remain on recovery. And with most plans, you get life cover included anyway.
Ben Burgess at LifeSearch says you can make the necessary amendments to existing cover or take-out additional policies if you need to
Critical illness policies pay out upon diagnosis of a defined illness or death, whichever occurs first.
For various reasons it is often advisable for both you and your partner to take your own ‘single life’ policies instead of a joint one.
A good starting point would be to look at a years’ worth of your annual pre-taxable earnings and run the term until retirement age.
If you are diagnosed with a critical illness during the term of the policy, it will pay out on top of the sick pay offered by your employer or statutory sick pay from the government.
Tying the pay-out to your annual salary or a years’ worth of bills allows you to set up a policy which will make a massive difference in your time of greatest need. It will not be overly costly, and will allow you to continue to save up for your deposit or for starting a family.
Income protection is another viable option. This pays out a tax-free monthly sum upon the diagnosis of injury or illness, providing the condition was not pre-existing and that it stops you from being able to work.
It does not cover redundancy or unemployment. If you do not get sick pay or are only entitled to statutory sick pay, this is an attractive option which covers you from broken bones all the way through to serious illness.
If you have substantial sick pay or savings, this is a low-cost and effective way to top them up.
Legal and General and some other insurers even have a range of policies specifically designed for renters, which allows you to increase the amount of cover should your landlord raise the rent.
You do not have to complete another application and there is no additional underwriting requirement from one year to the next.
Life, critical illness and income protection cover are all priced according to your age, health, occupation, and family history, so it is advisable to put something comprehensive and cost effective in place now while young and healthy as opposed to waiting until the birth of a child or the purchase of your first home.
Your protection needs will change as your family and financial responsibilities grow, and the cover can change in the future too.
As a result, you can make the necessary amendments to existing cover or take out additional policies if the need arises.
Questions renters should ask to determine if they need life cover
1. What would happen if either of you lost their income for a few months?
2. How long would your savings last after the death of your partner?
3. Would you be happy to use your savings to help you pay the rent after the death of a partner, and would this impact the surviving partner’s ability to save for a deposit and buy?
4. Could you cope financially if you were too sick or injured to work?
Nikita Davis, insurance adviser, Cavendish says: ‘Think about something as simple as breaking an arm which stops you doing your day job for a number of months – the last thing you’d want would be to have to start eating into your hard-earned house deposit fund in order to cover the regular bills. Income protection insurance can help to avoid this potential situation.
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