Advisers should help their clients plan for the future properly by discussing the benefits of life insurance
I am going to try and do the impossible: I am going to ignore politics (for the purposes of this article, at least).
Yes, we are just weeks away from the general election and, yes, housing does seem to be playing a part in all parties’ manifestos but I am sure we are all feeling a little disillusioned with Westminster at present. Indeed, while not exactly proactive, taking a ‘wait and see’ approach is probably the best we can do for now. And so, on to less frustrating things.
Let me ask you a question. What protection are you recommending your buy-to-let clients take out? I would assume all brokers with such clients are recommending landlord insurance – and rightly so. Standard home insurance does not cover rental properties appropriately and specialist landlord insurance is essential when it comes to protecting a client’s assets.
But are you also considering life insurance to cover their portfolio? Buy-to-let protection is often ignored by landlords and for a very obvious reason. When we take out a residential mortgage, life insurance is advised in order to pay off the debt. As buy-to-let mortgage debt is serviced by rental income, there seems little need for the extra protection.
However, your clients could be at risk of losing thousands of pounds without it; not to mention jeopardising the portfolio they have spent blood, sweat and tears building up.
Indeed, a landlord may have spent years building an estate worth millions of pounds. Upon their death, their family could face debt they do not qualify for and an inheritance tax bill of 40 per cent. This could result in a forced sale, not to mention the fact HM Revenue & Customs requires their bill to be paid within six months. Families often find themselves in a position where they are forced to sell some of the properties quickly at a discount.
Having buy-to-let protection in place removes that risk, as the policy can be used to pay the mortgages and tax bill. What is more, if policies are set up in trust, pay-outs are protected from IHT.
These are trying times for landlords. With tax relief cuts and stamp duty hikes investors are clearly feeling the pinch. Clients will appreciate anything you can do to keep them protected and save them money. Make sure you are having the protection conversation and that they are properly planning ahead. We may not have any idea what is next in the political world but we can at least help clients to have some certainty in their future.
Ying Tan is managing director of the Buy to Let Club