I would like to introduce Mark Alefounder from HD Consultants, Mark is guest blogging today with an article about the importance of life cover especially whilst being a landlord.
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I
spoke to a friend of mine last week who owns and rents property. The reason he
bought property was to provide him with more of an income when he retired, so
that he could still afford to provide his children and grandchildren with all the
things he could when he was working. I became concerned when he told me his
health was declining and he still had a mortgage on his rental property, but no
life insurance.
Nowadays,
it’s rare to meet a property investor who has sufficient life cover to protect their
property related debt. More surprising is that there are still a large number
of people that haven’t even considered taking life cover for their property.
The
need for life cover is something that all too often gets overlooked. In fact a great
number of people will insure washing machines, irons and televisions before they
consider insuring themselves!
Your insurance just
needs to be fit for purpose
– to give you confidence knowing you’ve got things covered.
What happens if I don’t have insurance?
Most
people have very different ideas about what happens to their estate when they
die. Many think that property held in sole name of a deceased landlord passes
to another and they take over the mortgage. That is absolutely not the case.
“What would be the effect of my death on my
portfolio?”
·
Would your mortgage lenders just
transfer the mortgage to your beneficiaries?
·
Would there be enough equity in
the properties for your beneficiaries to refinance them?
·
Would the rental income be enough
to satisfy the lenders criteria to refinance if interest rates increase?
Who knows?
What would lenders expect with a
buy to let mortgage in place in the event of death of the landlord?
·
We would expect the mortgage debt
to be repaid from either the cash funds held by the deceased’s estate, or the
sale of the property by the executor of the will.
·
If a sole borrower then
technically we would require the account to be redeemed.
·
In the event of death of a
borrower/landlord if the BTL is in sole name we would ask for the mortgage to
be redeemed in full.
·
It’s fair to say we would expect
a sole mortgage to be redeemed.
Alarmed yet?
Many
landlords might say the reason they bought property was to control of their own
destiny and to build up a nest egg they could use in retirement.
It’s
great if you get that far, but sadly a great many don’t. Instead, you are no
longer around and that property is either passed to your surviving spouse or
sold. Hardly what you had in mind when you purchased your first property is it?
What about your beneficiaries?
That’s
another point to consider. When you started on your plan, you no doubt thought
that your property would be for the good of everyone in the future. Good for
you, your spouse, children… everyone.
What
if you don’t reach retirement?
Does
your spouse want to look after a property portfolio? Can your children help
your spouse? In fact, would giving them your property portfolio be possible? If
nothing else, your average tenant will still demand hot water, light, electric
and gas. Sadly, there will be little sympathy for your spouse, regardless of
personal circumstances.
Does your property really look after itself?
Even
if your rental income far outweighs the monthly interest payments, the property
does not look after itself. Take away the property manager, you, and who steps in? There isn’t
necessarily a replacement.
Why take out life insurance?
While
it won’t manage your property, it will look after those loved ones you leave
behind. In a time where anxiety and responsibility could be forced upon those
most precious to you, it can provide a cushion or buffer to enable them to
return to a normal life.
It
also means your beneficiaries can potentially inherit a mortgage free property.
It gives them some options and flexibility to make considered decisions. Some
control.
They
could keep the property going, but employ someone to manage any transition.
They can still sell the property, but at a time they decide is best and
convenient, not at a time dictated by a lender. Of course, they can also
benefit from an income.
What is the best way to do this?
The
simplest way of addressing all it all is to put in place a flexible, tax
efficient life insurance policy, probably in trust, to make sure that the right
people receive the money with minimum fuss.
All
too often people are afraid to speak up, so instead they assume. In this
instance we find that a great many people make an assumption which can
potentially have a devastating effect on those left behind.
Speak to an adviser who
can guide you through the options available. Get protection that will serve you well into the
future. Give yourself peace of mind that you can continue to provide for your
family when you’re no longer there.
Mark
Alefounder
HD
Consultants
