Do renters need life insurance?

Last updated: 05/06/2023 | Estimated Reading Time: 9 minutes

Do you really need life insurance if you’re a renter? Typically, owning a home is the biggest predictor of having life insurance. However, if you have dependants who would struggle to get by if you died, not having life insurance could put them in a precarious financial position should the worst happen, even if you don’t have a mortgage.

In the last 20 years, homeownership among young people has decreased by around 40%, and at the same time, the proportion of renters in the UK has doubled. Clearly, renting is on the rise and will likely continue along this trajectory, which means it’s now more important than ever to dispel the misconceptions about renting and life insurance.

In this helpful guide, you’ll discover if you should consider getting life insurance as a renter. In addition, we’ll walk through other insurance policies that could also be beneficial, such as income protection insurance, critical illness cover and contents insurance for those who rent.

In This Guide:

What Is Life Insurance?

First of all, we should clarify what a life insurance policy entails. Many people aren’t too familiar with the details surrounding life insurance, so here’s a quick rundown.

Life insurance covers your family’s financial needs if you were to pass away by paying out a tax-free lump sum of money upon your death. For your family to make a successful claim, you need to keep up with your monthly payments (called premiums) and die within the term specified in the policy. Many people choose a level term policy that covers you for a period such as 20 years, but you could opt for whole of life cover if you don’t mind paying higher premiums.

The amount you pay in premiums depends on several factors, including:

  • Your age, as older people will pay higher monthly premiums;
  • Your lifestyle;
  • Any pre-existing medical conditions;
  • How much cover you need (such as the term and the final payout);
  • The type of policy you choose (e.g., level term insurance, whole of life cover, decreasing term insurance).

Why Do People Get Life Insurance?

Having life insurance will give you peace of mind if you know that your family would struggle financially if you died. This is especially true for those who have dependants to look after, such as children, elderly parents who need care or a partner who doesn’t have their own income. 

Despite fears about the success rate of life insurance claims, it’s usually a quick and simple process to claim life insurance money as long as you didn’t withhold important information from your insurance provider. To maximise the money your family receives, it’s possible to put your payout into a trust for your children, as this could save you money if your estate is subject to inheritance tax.

Mortgage Life Insurance

In addition to helping cover general life expenses, including utilities, groceries, school fees and university fees, life insurance can help your family keep up with mortgage repayments if they no longer have your income. In fact, getting a mortgage is one of the biggest reasons why people decide to get life insurance, and some mortgage lenders will even insist that you have life insurance as a condition of the mortgage offer.

Homeowners often opt for mortgage life insurance, which is usually sold as a decreasing term life insurance policy. With this type of policy, your eventual payout decreases in value over time in line with the decreasing value of your repayment mortgage as you pay it off, until the total reaches zero. Since the payout decreases over time, this insurance can be a lot cheaper than level term cover.

Do I Need Life Insurance If I Rent?

You may think that the existence of mortgage life insurance suggests that life insurance is more appropriate for homeowners, but this isn’t necessarily true. Yes, having a large debt such as a mortgage can make it more important for you to get insured to protect your family financially, but this isn’t the only reason why people get life insurance.

For example, if you have dependants, you need to consider if they would be able to manage if they suddenly lost your income. Would your family be able to afford rent, bills, food, clothing and other living costs if you passed away? If the answer is no, then getting life insurance could definitely be a worthwhile investment, even if you don’t own a home.

The Life Insurance Protection Gap

Unfortunately, more and more people are forgoing life insurance due to misconceptions about who needs it. This lack of insurance coverage for people who have dependants or assets is known as the ‘protection gap’.

Young people who rent are at particular risk of falling into this category. Often, young renters feel like they can’t justify the expense of paying for monthly insurance premiums, even if they have dependants who would struggle if they pass away.

Since the proportion of renters in the UK is growing, and people are renting for much longer periods of time, this protection gap poses a huge threat to many families. At the moment, many renters aren’t getting insured, and the problem could continue to grow if young renters keep believing that life insurance isn’t for them.

Other Insurance Options for Renters

But what if you don’t have dependants? If you haven’t got a mortgage, other debts or dependants who rely on your income, then a traditional life insurance policy may not be the best choice for you.

However, there are many other types of policies that could be extremely helpful. Here are some examples of common insurance policies for renters.

Please Note: Not all insurance providers we work with offer all types of policies. Please do your research and compare quotes before proceeding.

Joint Life Insurance

One of the biggest reasons why renters in their 20s and 30s (and even beyond) dismiss the idea of life insurance is the cost. The monthly premiums for many types of life cover can be expensive, and in the current cost of living crisis, people are choosing to prioritise other necessary monthly outgoings.

A cheaper alternative is joint life insurance. With this life insurance cover, you pay premiums with your partner and receive a lump sum of cash if one of you passes away. This is a great option for those who share financial responsibilities with a partner, such as rent payments.

However, you should bear in mind that this life insurance policy only pays out once to provide for the surviving partner. If the second person passes away, their beneficiaries won’t receive a second payout as the policy has ended. 

Critical Illness Cover

Those who don’t have a mortgage or dependants still have themselves to look after. For example, if you were no longer able to work, how would you pay for your rent, bills and general living expenses?

Critical illness cover can give you financial security if you become disabled or too ill to work. This insurance provides you with a lump sum payment to cover living and medical expenses following a serious illness or injury, such as cancer, a stroke or the loss of limbs. The medical conditions covered can vary in each policy, so make sure you check this beforehand. However, critical illness cover generally only covers very severe illnesses, and if you have a pre-existing medical condition, this may not be covered either.

Your insurance provider may allow you to add critical illness cover to your term life insurance to make it a life and critical illness policy. However, this policy will only pay out once, so if you make a claim due to a serious illness, you won’t be able to make another claim for an additional illness or death.

Income Protection Insurance

Income protection insurance covers a wider range of illnesses and provides more long-term security. Instead of granting a lump sum cash payment, this insurance policy will provide you with a regular tax-free income until you can return to work or retire.

Typically, you can expect to receive half to two-thirds of your normal income with income protection insurance. However, you’ll need to wait at least 4 weeks before you start receiving these payments, so you need to rely on savings, your workplace’s sick pay policy or statutory sick pay for the duration of this waiting period. Setting a longer waiting period can make your policy cheaper.

Income protection insurance is generally more expensive than critical illness insurance because it offers a greater level of cover, both in terms of long-term support and the range of medical conditions included. Additionally, the cost could increase depending on your age, lifestyle and how dangerous your current occupation is. However, you can reduce this cost if you agree to only make a claim if your illness or injury renders you unable to perform any job, not just your current job.

Contents Insurance for Renters

In addition to critical illness cover or income protection insurance, you should seriously consider investing in contents insurance for those who rent, also known as tenants’ insurance. 

Contents insurance covers the cost of replacing your personal belongings in your rental property if they are stolen or damaged (such as by a fire or a burst pipe). Everything else, including the building itself and furnishings if you’re living in a furnished property, should be covered by your landlord. 

Furthermore, contents insurance for those who rent often includes tenants’ liability insurance, which covers accidental damage to your landlord’s property. This could help you avoid losing your deposit to cover accidental damage such as a broken window. 

However, these policies typically don’t cover general wear and tear, certain high-value items or theft/damage in a property that has been unoccupied for more than 30 days. You could also have your claim rejected if your items were stolen due to your negligence (i.e., you left the doors and windows unlocked). Make sure you check the specific terms and conditions of your tenants’ insurance cover to help you avoid unsuccessful claims.

Life Insurance Quotes for Renters

The life insurance protection gap is growing rapidly in the UK. Since life insurance is so commonly associated with homeownership, many renters across the country are forgoing vital financial protection, and this could have devastating consequences for their families.

To solve this issue, we need to debunk the myth that renters don’t need life insurance. Not all types of life insurance may be appropriate for you, but by working out what your financial obligations are and how much cover you need, you can find insurance policies that will give you and your family financial protection without breaking the bank.

Additionally, getting life insurance earlier rather than later can help you take advantage of lower monthly premiums. To compare policies and costs, you can get in touch with the Money Expert team. By comparing quotes and policies, you can find the perfect policy for your needs and make life insurance work for you.