Universal Credit (UC) rules should be revamped so that renters can receive insurance payouts with no deduction to their benefits, a new report from the Institute and Faculty of Actuaries (IFoA) has suggested.
Under the current rules, renters who receive income from insurance policies like income protection (IP) and family income benefit (FIB) have it deducted pound-for-pound from their UC entitlement.
This makes it “effectively impossible” to insure against a rent shortfall following an unexpected illness or accident, according to the report.
The problem only exists for renters, with owner-occupiers allowed to receive insurance payments to cover mortgages with no reduction to their UC.
By extending this to all housing costs, the report forecasts government savings of more than £150m over five years due to reduced renter reliance on UC and less spending on temporary accommodation and preventative action.
“COVID-19 has highlighted the limited ability of many households to cope with an interruption in regular income,” said Richard Purcell, report co-author and insurance innovation lead at Hymans Robertson.
“As we turn our thoughts to a post-COVID future, there is a clear and urgent case to develop policies which will help renters be more resilient to income shocks.”
The report is based on analysis by Hymans Robertson’s life & financial services team, with previous research from the firm estimating that there is a £30bn rental protection gap in the UK.
This impacts an increasing segment of society, with over 4.5 million private rented households in the country, and those on lower incomes are the most vulnerable.
With the suggested UC changes, the report predicts government savings over five years to reach £151.3m. However, if no policy change is made, it estimates that the costs to the State could increase to £43.8m.
“The private rental sector, which continues to grow in the UK, traditionally has lower levels of financial resilience," the IFoA said.
“Amending the rules as proposed in this report would be a step in the right direction to addressing this. The COVID-19 crisis has highlighted the pressing need to support many in our society to become more resilient to financial shocks.
"We encourage the government to use this analysis as a starting point for more detailed consideration of this important issue.”
Author: Chris Seekings
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