With the number of people renting their homes on the up, there is likely to be huge demand for this. Although the benefits system covers rent, this support often falls short of the amount charged in the private rented sector.
This move also supports government housing policy. Under the shared ownership Help to Buy scheme, the homeowner pays a combination of mortgage and rent.
“Having a disregard for protection taken out to cover rent would improve the financial resilience of these first-time buyers,” adds Mr Timpson. “It would also address the disconnect between the government’s welfare and housing policies.”
Negotiations are already well under way to secure this disregard, but putting it in place may take time. While the disregard for mortgage interest was a matter of clarifying the wording to include IP alongside MPPI, extending it to rent would require an amendment to the 2012 Welfare Reform Act.
There are also calls to exclude protection income that covers other living expenses such as utility bills, council tax and childcare from benefits means-testing.
Mr Hamilton says this is positive: “The more we can remove unnecessary, counter-intuitive and counter-productive disincentives to individuals making their own provision, the better. The changes to mortgage interest support in April simply reinforce the fact that state benefits are likely to continue to be eroded.”
Creating a system where individuals are better off if they take out protection is also in keeping with the government’s push for self-provision. Mr Hamilton adds: “Disincentives have already been removed around pensions to make sure people are not disadvantaged for making their own provision. The more the government can encourage self-provision, the better.”
Excluding mortgage-related protection payouts from state benefit assessments is a great first step for the insurance industry. With negotiations under way to ensure self-provision dovetails more neatly with state benefits, it should improve the fortunes of the IP market.
BIG NUMBERS
1m
Number of people in the UK that suffer a prolonged absence from work due to sickness each year (Chartered Insurance Institute, Building Resilient Households Group)
34%
Proportion of adults who would not be able to recover quickly from an unexpected financial shock or loss of income (Zurich, ‘Cost of resilience’)
10%
Percentage of people covered by insurance that would cover their income if they were unable to work (Chartered Insurance Institute, ‘Building resilient households’)
2.8%
Increase in sales of individual IP between 2016 and 2017 (Swiss Re, ‘Term & health watch 2018’)
121,084
Number of new individual IP policies sold in 2017 (Swiss Re, ‘Term & health watch 2018’)
