If you think about, it it’s perfectly logical. When a mortgage is first taken out, the majority of people tend to consider investing in some form of income protection.
The reasons for this are fairly obvious: most employers don’t pay for very long if you are off work, government benefits are near non-existent and, for many people, unless you have savings, it’s unlikely you will meet your mortgage payments after as little as a month of interrupted income and no protection.
Of course, having just ploughed your life savings into a new home and its contents, the need for an income protection policy is usually pretty strong, and most can see the obvious wisdom in paying perhaps £30 a month for something that could cover their mortgage payments for years if an accident occurs.
However, for renters this can be very different. According to the Financial Conduct Authority: In 2017, the Financial Conduct Authority found renters were three times less likely than mortgage borrowers to have arranged life protection insurance. Of the 14.8m UK adults living in rented accommodation, 81 per cent had no form of income protection insurance.
Typically though, home buyers are routinely educated about all the income protection options available to them and are able to make informed decisions. Mortgage advisors do that because it’s the right thing to do, but clearly also because it’s a solid source of income for them. Insurance needs to be sold, and no one queues up to enquire about protection.
For advisors, the reason we build this into our practice is that it aligns with our interests as well as yours. We make time for it because that time is compensated. So, as far as we’re concerned, it’s a win-win for both parties.
The case for landlords
So what about when it comes to landlords and income protection? As a landlord, you are dependent on your tenants being able to pay their rent. After all, how long on average does it take to evict someone who is unable to pay as well as then find a new tenant? Perhaps a few months for the eviction, a month to secure a new tenant, then a further month’s rent to the agents who handled everything. That’s a lot of money to forfeit.
Most tenants may not even know that they could protect their income. They may think that housing benefit will cover the rent. Your time spent educating your tenants on income protection could be very well compensated too, so it makes good business sense to be having these conversations.
For instance, take a single 29-year-old non-smoking male who earns £25,000 per annum as a delivery driver. Their rent is perhaps £650 a month in a two-bed terraced house. Assuming they qualify for housing benefit they would usually get about £83 a week or £360 a month. As a delivery driver it’s unlikely they are going to get much from their employer if they have an accident. If they break a leg and are off for two months, it’s not hard to see the numbers won’t add up and that rent is not going to get paid – nor are most of their other commitments during this time.
This is where income protection comes in
Your tenant in this case could protect their income (and therefore yours) of up to a sum of £1,250 monthly. Based on the above income, they could take out income protection for as little as £15 a month.
The likelihood is that the tenant already pays a similar amount to insure their iPhone. If iPhones also generated £1,250 a month in cash, I bet they would pay a great deal more than £15 a month to protect that!
So what do you need to do?
Have that conversation. Talk to your tenants and find out what they know about their contingency plans. It may be time to have a frank discussion about how things might look if they are off work for a few months, and letting know that they could protect that income if they choose.
If you want to have a chat about this further with us, please feel free to get in touch. If your tenants would like to consider protecting their income then simply email AALTO Mortgages at email@example.com with your tenant’s details and mobile number, and we can talk through their options from there. Alternatively, they can seek advice from other advisors by searching on www.unbiased.com.
There’s absolutely no obligation
If they decide not to take the protection then that’s up to them. Your tenants may not necessarily care about your void periods or cashflow, but they do care about keeping a roof over their heads and their ability to maintain their quality of life – it just so happens that also very much aligns with your objectives too.
Just a ten minute conversation could not only greatly benefit your tenants should the worst happen – but also give your business an extra layer of certainty at a time when finances are looking ever more precarious.