What your family would inherit along with the houses
A rental property looks like a straightforward asset until someone inherits it. With the house come the mortgage, the tenants, the repairs and the tax return. If the loan is large, your family may have to sell quickly to clear it, possibly at a bad time in the market and with tenants still in place.
Life insurance gives them a choice. With the debt cleared, they can keep collecting rent, sell when they are ready or hand the property on to the next generation.
Matching cover to buy-to-let borrowing
Most buy-to-let mortgages are interest-only, so the amount you owe on the last day is the same as on the first. Level term cover suits this, because the payout stays at the full figure throughout. If you have a repayment buy-to-let, decreasing cover can follow the falling balance.
With several properties, you can hold one policy for the total borrowing or separate policies per loan. One policy is simpler. Several give you flexibility to cancel cover when you sell or refinance a particular property.
Think about the income too. If your family relies on rental profit to pay their own bills, a payout that clears the debt also lifts that profit, because the mortgage interest disappears. For some landlords that makes the policy pay twice over in practical terms.
Inheritance tax on a portfolio
Rental property counts towards the value of your estate. A landlord with a few houses and rising values can find the estate is well above the tax-free allowances, especially as some reliefs that help family homes may not apply to let property.
A whole of life policy written in trust can pay out a sum your family uses to settle the tax bill, so they do not need to sell a property to raise it. Because the policy sits in trust, the payout itself normally stays outside your estate. A solicitor or tax adviser should help you work out the likely bill.
Personal ownership or a limited company
If you own property through a limited company, the company holds the mortgage and the houses. Your shares pass under your will, and the company debt stays with the company. Cover for this set-up can differ, and in some cases the company itself takes out a policy on a director.
Landlords who own personally, jointly with a partner or through a mix of both should check that each policy pays out to the person who would carry the debt. Getting that wrong can leave money in the wrong hands.
Joint owners should also think about the other owner. If you own a property with a sibling or business partner, their family could inherit their share. Cover on each owner, payable to the other, can let the survivor buy out the share without selling.
How Hi Tomorrow helps landlords
We list your properties, loans, ownership and repayment types, then design cover around them. That may be level term for interest-only loans, decreasing cover for repayment ones and whole of life for the tax bill, all with trusts set up correctly.
If your portfolio sits in a company, we can also look at business protection options and work alongside your accountant.