Jul

Government urged to rethink rules on insurance policy pay-outs

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Putting renters and homeowners on an equal footing would mean they wouldn’t rely so heavily on Government funding and could avoid problems with debt, a new report says

Shaking up the benefit rules for renters taking out private insurance policies would result in fewer getting into financial difficulty and would help them to pay their rent.

A new report from the Institute & Faculty of Actuaries (IFA) and Building Resilient Household Group suggests amending Universal Credit (UC) rules on pay-outs from policies (for Income Protection and Family Income Benefit), enabling renters to benefit from them – something which owner-occupiers can already do. It points to a growing gap created by the system between the rent that households have to pay and the amount of benefit they receive; in most of London and some other UK hotspots the gap can be very large and many end up in debt, which can then mean homelessness.

Under the current benefit rules, renters who receive income from insurance policies can’t use any of this money to cover the rent gap. Instead it simply reduces their UC entitlement. This means that it’s effectively impossible to insure against facing a rent gap while on benefits. However, recent changes to the rules have meant that any insurance payments that homeowners get to cover their mortgage are disregarded under UC rules.

The IFoA believes that if the amount paid out by an insurance policy was deducted from the actual rent payable by the tenant (gross rent) rather than the housing benefit (net rent) it would encourage more renters to take out cover for the gap between gross and net rent, giving them the ability to protect their accommodation.

Nick Reilly, IFoA chair of the health & care board, says: “The research suggests that this small change could dramatically improve the circumstances for many renters, protecting their homes at a time when they need them most. Under many circumstances the analysis shows that this change is also beneficial to the taxpayer, and so we urge Government to investigate this further as there are benefits for all.”

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