The Importance of an Insurance Agent
In the excitement of buying a property in Jerusalem, the Buyer may accidentally give the issue of insurance less attention than it deserves. This can result in the Buyer failing to purchase the right insurance(s), which could have costly consequences. The Buyer may under- or over-pay for his/her insurance(s), and he/she may not be covered when damages, losses, and/or injuries occur.
When purchasing a property in Jerusalem, it is likely that the Buyer will need a bank to approve him/her a mortgage loan to buy an apartment/house. Israeli banks require the Buyer to take out Mortgage Insurance before granting him/her a mortgage loan. Mortgage Insurance consists of two components: Life and Property Insurance.
1 – Life Insurance
Life Insurance is there so that the Beneficiaries can continue maintaining the same quality of life as if the Buyer were still alive (and pay off the mortgage, hence why the banks require it of the Buyer). In the case of mortgage life insurance, the prime beneficiary is the bank and the policy is used to pay off the mortgage. The insured sum under the policy is paid to the bank as a lump sum. In the event of any money being left in the policy after the Death Benefit is paid to the bank, the balance is paid to the other beneficiaries under the policy.
The insured sum under a mortgage life insurance policy is the current balance of the loan. In the initial years after purchasing a mortgage life insurance policy, the mortgage repayments consist of a higher premium (and potentially higher interest rates too). In later years (as determined by the policy), the principle decreases, meaning that the policyholder will pay less.
The premium is determined based on the age of the policyholder and his/her partner; the length of the mortgage and the interest rate; and the state of health of the policyholder and his/her partner (whether they smoke is taken into consideration as well). All insurance companies give sizeable discounts on the basic premium, but each quote needs to be examined in detail as the discount rates change over the lifetime of the policy. The insured sum of the Buyer’s Life Insurance and the premiums are linked to the Madad (the Cost of Living Index).
The Buyer must also take note that it is hard to get Life Insurance from aged 70 onwards. (But this can also depend upon the health of the Buyer, the medical history of the Buyer, the financial situation of the Buyer, and other factors that are taken into consideration when the insurance company determines how to calculate the policy.)
2 – Property Insurance
A bank requires the Buyer to purchase Property Insurance in order to grant him/her a mortgage. The Buyer, with the aid of an Agent, must choose a policy that best suits his/her needs. The Agent will set the ball rolling (so to speak) by sending an assessor over to the property that the Buyer wishes to purchase, to make a detailed valuation of the said property (the cost of which paid for by the insurance company).
The valuation is important. It protects the Buyer from paying too much (or too little) for his/her Property Insurance. It also protects him/her against possible claims in the future as to what was assessed at the time of completion.
1) A ‘standard’ policy, which is dictated by regulators, is fairly extensive, and covers only the risks that are outlined in the policy;
2) An ‘all risks’ policy, which covers the Buyer for all risks unless they are expressly excluded from the policy.
The banks only require the Buyer to purchase a ‘standard’ (or basic) policy. The difference in cost between a ‘standard’ policy and an ‘all-risks’ policy for the structure is negligible.
Property Insurance is made up of four components: structure, contents, third party liability, and employer’s liability for employees who work in the home.
A. Structure Insurance
This is the fundamental component of the Property Insurance for the Israeli bank to grant the Buyer a mortgage loan. Structure Insurance covers the Buyer for damages and losses in case of:
- Water damage* and flooding;
- Break-in and robbery;
- Civil unrest;
- War and terrorism are also covered (although this is covered not by the insurance company, but by the government and paid for by a property tax as is explained further on in this article).
*When it comes to water damage, the insurance policy will include a basic coverage for damages as a result of broken plumbing pipes. However, when water leakage takes place the insurance company will usually outsource the job of fixing the damage to a plumbing company. Often, the service that they provide will not be adequate for the Buyer’s needs. Thus, the Buyer is advised to take up a ‘prime service’ option to give him/her a higher level of plumbing service, so that he/she can choose a plumber of choice.
Nevertheless, the Rebuilding Costs do not take into account the value of the land upon which the property is built. That is referred to as the “Market Value.” If the Buyer wants the Market Value to be considered, he/she can purchase ‘additional structure insurance’ that will bring the coverage up to around the market value of the home. Most companies provide this extra coverage at 2, 3 or even 4 times the rebuilding value, thereby enabling the Buyer to purchase another home of similar size and quality, and in a similar location. This additional coverage is only available in apartment blocks and is not provided for stand-alone houses or duplexes.
The additional insured sum goes into force in the event that the entire structure of the apartment block has been destroyed (or has been officially declared to be uninhabitable) and condemned by the authorities for demolition. The damage needs to be caused by one of the risks covered by the policy, like earthquake, fire, subsidence, explosion, etc… The rationale behind this additional coverage is so that if the other apartment owners in the building are unwilling or unable to rebuild their properties, the Buyer will not be dependent upon their decisions.
B. Contents Insurance
Banks do not require a Buyer to purchase Contents Insurance. However, the Buyer is strongly advised to purchase Content Insurance and make it part of his/her Home Insurance to be covered in the event of damage or loss to contents/items.
When it comes to Contents Insurance, the Buyer must be aware of what items are (and are not) covered in the insurance policy. An Agent will also strongly advise the Buyer to purchase an ‘all risks’ coverage to cover damage such as breakage of crockery or glassware as result of the collapse of shelving. Under a standard policy, this would be excluded.
Moreover, some items, such as jewelry, laptops/tablets, valuable bicycles, cameras/videos, furs, portable medical devices, religious items, and licensed firearms, need to be insured with an ‘all risks’ policy. Otherwise, the insurance company will not recompense the Buyer if loss or damage occurs to the item(s) outside of the home.
In the event of contents valued at more than 200,000 NIS, insurance companies will send in an appraiser (at their expense), who will produce a detailed and itemized report in to determine the final premium for the contents.
Based on the appraisal, the insurance company can demand the installment of anti-theft security equipment, depending on the value and make-up of the contents and which storey the apartment is on (ground floor and top-floor apartments require more extensive security). The basic requirements are for window-bars (or electrically operated metal blinds) and a multi-lock steel door (referred to generically as a ‘Rav Bariach Door’) at the main entrances. The insurance company can also demand alarm systems that are connected to a security company and to the apartment owner’s cell phone.
C. Third Party Liability Insurance
Like Contents Insurance, banks do not require a Buyer to purchase Third Party Liability Insurance to cover the Buyer and his/her family for damages that a Third Party* causes to people or to the property.
Banks do not offer Third Party Liability Insurance either. To acquire it, the Buyer (with an Agent’s assistance) will have to go to an insurance company. Usually, the amount that the Buyer is covered for ranges between 750,000 – 1,500,000 NIS. But it is prudent for the Buyer to raise this amount for a small premium. This is because there is no umbrella insurance in Israel and the Buyer could have to pay a significant amount of money if a Third Party causes damage over the stipulated amount.
*A Third Party (for insurance policy purposes) cannot be a family member or a worker in the home. Furthermore, damages as a result of business activities are not included in Third Party Liability Insurance either. There are other exclusions, but this depends on the Buyer’s insurance policy.
D. Employer’s Liability Insurance
Like Contents and Third Party Liability Insurances, banks do not require a Buyer to purchase Employer’s Liability Insurance to cover the Buyer in case an injury occurs to an employee on the premises; and like Third Party Liability Insurance, banks not offer it either, meaning that to purchase it the Buyer (with an Agent’s assistance) will have to go to an insurance company. (However, Employers Liability Insurance is included automatically at a very low cost in regular Home Insurance policies.)
A Buyer may wonder if this component of Property Insurance applies if he/she does not intend to use their home as a place of business. Nevertheless, the Buyer should purchase Employer’s Liability Insurance because cleaners and gardeners are considered employees to the Buyer (who is thereby deemed an employer) for insurance purposes.
However, if the Buyer intends to make a section of his apartment/house an office or a clinic, the Buyer can add coverage to the policy. (Note, ‘standard’ Employer’s Liability Insurance does not include making part of the home as a work-place, so the Buyer will have to contact his/her insurance company to acquire this extra coverage.)
Additional Insurance For Homeowners Who Live Abroad
If the Buyer lives abroad, or at least does not regularly dwell in his/her home in Jerusalem for over 60 consecutive days at a time, the Buyer will need to purchase additional insurance to cover him/her for damages and/or losses for the time when the property is ‘unoccupied.’
Will Renovating The Property Affect Insurance Coverage?
Renovating the property can affect what is covered under the Buyer’s insurance policy, but this depends on the policy’s terms and conditions. In general, if renovations are to take up to two weeks, all that is covered under the insurance policy will still be covered.
There is no Title Insurance in Israel, unlike in other countries (such as the USA). So, the Buyer need not worry about buying it.
War Risks And Terrorism Insurance
Structure: Structural damage to a dwelling as a result of war or terrorism (missiles, rockets, mortar, sabotage, explosive devices, etc…) is covered entirely by the government under the terms of the Property Tax and Compensation Law, 1961. Private insurance is not necessary and (in any case) is not offered by insurance companies.
Contents: Damage to contents is covered automatically under the Property Tax and Compensation Law, 1961, only up to a limited amount. The amount depends upon the number of people living in the apartment/house and the types of items that were damaged. It is possible to purchase insurance for war and terrorism damage to contents via regular insurance companies to a sum in excess of what the Buyer is entitled to, up to a total of $1 million worth of contents.
How Do You Make A Claim?
The Buyer is advised to call his/her Agent to deal with any claims, even before the Buyer contacts the insurance company. The Agent will make sure that the claim is handled correctly and speedily, and the Agent will outline what the Buyer must do.
However, if the Buyer wants to make the claim without the aid of the Agent, he/she can contact his/her insurance company at any time during the day. All insurance companies have a 24-hour claims service.
Real Estate in IsraelOne of the things that I pride myself on is having a complete understanding of my client's needs. This understanding results from a consultation where I ask my clients questions about what they're looking for in a property. Below are the topics...