Landlords Life Insurance Calculator

by Mark Alexander

5 years ago

Landlords Life Insurance Calculator

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Landlords Life Insurance Calculator

What is the minimum amount of Landlords Life Insurance we really ought to purchase?

I suspect the reason most property investors choose not to purchase Landlords Life Insurance is cost. For example, if you are 40+ years of age and your buy to let mortgages balances are £1 million plus the premiums can appear to be very scary if you ask for a quote for enough life insurance to repay all of your mortgages in the event of death.

For borrowers without family and/or business partners whose finances could be affected adversely by death during a mortgage term, the risk of having no Landlords Life Insurance is perhaps an acceptable one for them. However, for people who have borrowed jointly or would like to leave their properties to loved ones the risks are far higher.

In the event of the death of a borrower, even if it’s a joint mortgage, it is usually well within the rights of a mortgage lender to call in their loans. This is more likely to happen post credit crunch as several lenders have closed their doors to buy to let lending and want to recover as much money as possible. Lenders which are still actively in the market can now lend money at far higher profit margins so there is every incentive for them to call in their loans in the event of death too.

I am not a financial adviser and the following should not be construed as financial advice. It’s just my opinion as a landlord on what the minimum amount of Landlords Life Insurance should be purchased.

If I were to die tomorrow my wife would have two or three choices:-

1) Sell the property portfolio and pay off the loans

2) Refinance

3) Do nothing and force the mortgage lender to call in the loans, eventually reposes the properties and sell them. This would cost a lot more than options 1) and 2) above.  The reason is that substantial fees and penalties would be incurred and the mortgage lenders primary incentive would be to recover as much money as possible. Now I know that mortgage lenders have a duty to sell the properties for as much as possible, however, is that really what you think happens?

In my case, I want my wife to continue to receive rental income as I genuinely believe that property is the best form of investment. Therefore options 1) and 3) are out of the window for me.

On that basis, refinancing is her only viable option. However, to get a decent deal and retain the same level of cashflow she will need to be borrowing around 50% LTV. This is because it will cost her a lot of money to refinance and the interest rates she will be paying are far higher these days than when I arranged my tracker mortgages at bank base rate plus 1% to 2%.

I have concluded that the minimum amount of Landlords Life Insurance I should buy is the difference between my outstanding loans and the amount those loan balances would need to be to get 50% lending. As a simple example, if I were to own one property worth £100,000 with an £85,000 mortgage, I reckon I would need to purchase £35,000 of life insurance to enable my wife to be able to pay £35,000 off the mortgage and take a new mortgage for £50,000 (which is likely to have a higher interest rate) in order to maintain the status quo in cashflow terms. Now that’s very much a rough estimate as everybody’s circumstances are different but I hope you will find it a useful rule of thumb. The other reason I think the minimum amount of Landlords Life Insurance should be enough to reduce loans to 50% LTV is because at that level of lending, most mortgage lenders would be falling over themselves to offer decent interest rates, pretty much regardless of any market conditions I can realistically imagine.

To help you to work out the minimum amount of landlords life insurance you would need based on the strategy I have outlined above I have created a very simple calculator, see below …….


Jonathan Clarke

5 years ago

Interesting theory - I like its simplicity - I have submitted my figures and await the verdict!

Jeremy Edwards

5 years ago

We have provided life cover on a similar basis in the past, but everyone's circumstances are different. Remember, properties owned outright in spousal joint names will pass ownership on death by survivorship - without troubling the tax man.

The order of settlement of an estate on death is fixed by statute, so paying off mortgages on death is to all intents and purposes, compulsory. If it is not owned outright, then you will HAVE to refinance, one way or another.

If you want to ensure perpetual succession, then you will need to set up a property company, which will be expensive in the short term, (mainly Stamp Duty LT), but may qualify for Incorporation Relief. With a bit of juggling it is possible to save tax and reduce personal debt exposure, but it will take 2-5 years to show a positive return. If you have more than 5 properties, incorporation is realistic and has other advantages over time.

For a number of our clients, property ownership is addictive; what started as one BTL becomes 10 over time, then shop units and factory units, until they end up with a property company with shares in various family members hands, and dividend paid out across the family according to whim and need.

5 years ago

An interesting article. The only problem I see is about age. Would my wife qualify for a mortgage because of her age at some point in the future?

Mark Alexander

5 years ago

Hi Ian, interesting point and one which my business Partner, Neil Patterson investigated and wrote about some time ago in a blog called "Ageism in BuyToLet mortgages? Myths dispelled". Please see >>>

John Bolland

5 years ago

Hi Mark

I am looking into this and have been pleasantly surprised at the relatively low premiums for term cover for up to age 80 (I am 70+). £682.36 per month seems reasonable for £1/2 million and I gather it is fully tax deductible. However will I die before age 80/81.
Well maybe as I am a bit of a creaking gate but I do look after my health and am a non smoker. As it would be written as a trust outside my estate I assume my wife who would be 85 by then could just pocket the £500,000 to live on along with her pensions and investments and this would give her a breathing space to either liquidate the loans by selling the properties that in 10 years hopefully will have appreciated by a good amount,using agents and our trusty family solicitors to do the work at a pre-negotiated reasonable fee. I doubt she would want to carry on with the business and we have no children.

She has two aunts one who died recently at 98, the other who will be 101 in July and lives happily on her own with some help and has a brain as sharp as a knife still, so she will most probably outlive me.

My investigations and research continue but your recommended expert seems very good so far. Just have the hurdle of a medical review that could increase the premiums quoted.

So when will I die? Not the most pleasant of tasks this type of planning brings! Citywire used to have a Deathometer to let you calculate but I have not seen it on their www lately. It would be pretty annoying to die at 82 just outside the term and I would have spent £73,000 in premiums for the cover. Tax deductible though so cover for no cost? But it would probably be worth it , would it, is the question? It would give my wife some sense of security and freedom from hassle in her 80's. ( Plus a motive to bump me off - only joking dear).

I gather the maximum age cover can be given to is 85 when the premium from the start is £826.52 per month. (£139,000 approx in my case). My father died at 89+, almost 90 and my mother at 82 so I need to put my actuarial hat on which is no doubt what these insurance companies have done.........!

We would have secured occupation of our main property home by taking out a lifetime mortgage that lets you stay in until you both are dead or go into a residential care home - shudder the thought. But releases more capital to live it up with.

Decisions, decisions, decisions.

Mark Alexander

5 years ago

@Toplets - as I explained in my article, I am not a Financial Adviser. I was qualified and used to be directly authorised with the FSA but I've not been practising since 2009 and I surrendered my FSA registration back in 2009. However, I'm pretty certain that you can't claim tax relief on the insurance premiums for most life insurance policies. There may be a way around this if you are a limited company but please take advice from qualified professionals such as the firm I referred you to.

Effectively the life insurance company is giving you odds of about 11 to 1 for surviving beyond the insured risk period. In many ways that's good of course. On the other hand you've lost your stake if you do. What a weird discussion this is becoming hey? Taking out life insurance is effectively a bet with a bookie and in that bet you are backing yourself to pop your clogs by a certain date!!!

The way I look at this is not as a bet on me falling off my perch within X years. I'm looking at this on the basis of what the financial consequences might be for my wife if I do pass away in sooner than I would hope and then insuring against the consequences of that.

If you do live to be 90 the chances are (based on history repeating itself to some extent) that your properties will be worth considerably more and 50% LTV will have been achieved through property inflation. As you approach that stage you can of course begin to sell up. I take comfort in the fact that if I outlive my life insurance risk period the property inflation should more than cover my investment into the insurance premiums. Therefore, I hope we both live a healthy and happy life well beyond 100. Being a cautious type though I'm paying the premiums so that my family don't pay the price if I don't.

I hope that makes some sense?

Over the years, life's experiences have taught me two fundamental things;

1) I have found that sometimes the "what if's" can (and do) happen, albeit we hope they don't, even though we don't expect or plan for them to

2) and that because life, health, wealth and family circumstances change over time that when looking back at one's life we often say "if I'd have known then what I know now, I could have planned so much better...."

... but often it's too late.

Life Insurance, whether for mortgage cover, IHT planning, family financial security, business assurance etc., is the foundation of planning for today.

I like to ask my Clients to think of the life cover premiums / cost just like car insurance or house insurance - you pay your monthly premium, hope you / your family do not have to claim, and at the end of the year / term, you're glad that you didn't have to .... or ..... if you did HAVE to, you're very happy that you are covered, usually because the amount of the claim is far, far greater than the much smaller cost of the premium.

There's an old adage that says; "it's far better to have it and not use it, than need to use it and not have it".

Term assurance cover does indeed go up to aged 85, BUT of course there is also the option for permanent, guaranteed payout, cover called 'whole of life' cover.

Because it's permanent and guaranteed, the premiums are indeed higher, but then so is the chance of dying whilst the policy is in force (still 100% mortality rate, I believe 🙂 ) and so the insurance company WILL pay out whenever that occurs, hence the extra cost factor.

When considering the premium for any option though, as a property investor and businessperson, consider the cost as a % of your 'problem'.

i.e. if you need £500,000 of cover today, and your monthly cost (even Toplet's cost as quoted above at £682.36), well - in the event of a premature demise say, one day after the first premium has been paid (and this HAS actually happened to one of our Clients a few years ago - unforeseen and totally unexpected circumstances), the £682.36 figure represents just 0.136% of the sum protected!

The balance of risk to YOUR FAMILY is ; LOSE £500,000 (the 'cost' today without financial protection in place) or pay just 0.136% per month of that 'wealth' and retain that value (paid out in Trust, therefore with no taxman claws having an IHT slice), and ultimately have the peaceful knowledge that the right money, will go to the right people at the right time, for little cost of securing that arrangement.

And Mark makes some fantastic points too, such as;

"The way I look at this is not as a bet on me falling off my perch within X years. I’m looking at this on the basis of what the financial consequences might be for my wife if I do pass away in sooner than I would hope and then insuring against the consequences of that.

If you do live to be 90 the chances are (based on history repeating itself to some extent) that your properties will be worth considerably more and 50% LTV will have been achieved through property inflation. As you approach that stage you can of course begin to sell up. I take comfort in the fact that if I outlive my life insurance risk period the property inflation should more than cover my investment into the insurance premiums"

I totally concur with Mark.

I do NOT consider myself as a life insurance salesman, but as a 20+ year veteran financial planner who has applied the logic above to many of our 3,500 Clients and I can honestly say that on the occasions when the death claims have been processed - and paid - that I know then that the time I spent in providing my professional advice was absolutely worth it ... and so do the families who were left behind.

A bit morbid, but as we nearly all have this financial situation to consider, I can't apologise for bringing it to the attention of this forum, as I truly believe in the benefits of implementing financial security, helping my Clients retain their hard-earned wealth within their family, ensuring that the tax man do not taketh away, and that providing the right flexible solutions for our changing lives.


Mark Alexander

5 years ago

Hi Howard

Thanks for commenting. Check this out, if you type "Landlords Life Insurance" into Google this article is the first one you find below the adverts!

Guess who wrote the one showing immediately below in the Google results?



Just goes to show, the cream rises to the top (two) position(s).

I hope this also shows that we are passionate about providing the very best service to our mutual Clients too!

ps - if you type into Google "life insurance for landlords" - the results are switched ! 🙂

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