Understanding Insurance in Israel – Life Insurance
By Danny Newman, Branch Manager – Ramat Beit Shemesh, Goldfus Insurance & Investments
We have all unfortunately heard tragic stories or seen people collecting for widows and orphans. Whilst no policy can ease the sorrow of losing a loved one, a simple life insurance policy can at least ease the financial burden that comes with such a loss. Setting up a plan is usually very straight forward. There is no “grey area”. Someone is either “alive” or not. The most important part of the process is choosing which type of life insurance and sums insured best suit your family’s needs. It is the procrastination or the “it won’t happen to me” attitude that can cause the biggest stumbling block.
Here are a few important things to consider:
People who come on Aliya or choose to study long term in Israel, and who come with existing insurance plans from their country of origin often think, “I have life insurance. I know I am covered!” Unfortunately this may not always be the case. You should check the following:
- Will the policy pay out now that you are no longer a resident in your original country of origin? It is futile paying premiums if the policy will not pay out in Israel.
- Will the policy cover you if you live “over the green line” in places such as Efrat, Betar Illit etc.?
- Do the policies cover passive / active war or terror?
- Where will the payout be? Will this pose a problem to the beneficiaries?
The only thing that will ensure a payout at the time of a claim is concrete evidence. Do not rely on verbal confirmation or “my friend is with the same insurance company, and they had no trouble getting a payout from overseas“. As an example, one client of ours turned to us for life insurance cover following Aliya. The couple discovered that the wife was still covered through her policy overseas, but although both plans were taken out through the same insurance provider, the husband was not. It is imperative that written confirmation from the insurance company be obtained confirming they will payout if needed.
If the cover will remain in place, and ticks all the relevant points above, then it may be more affordable to maintain the cover from the overseas plan, as opposed to cancelling and taking out a new Israeli plan.
Currently, in Israel, one can only purchase term insurance plans for a pre-determined length of time. Whole of life plans have not existed here for many years. Whilst term insurance plans are the only available option, different insurance companies may offer different types of plans with regards to sums insured, maximum age, length of policy, monthly premiums and the option of the premiums rising every year, 5 years, 10 years etc.
There are currently three main options available in Israel:
- Lump sum life insurance
Lump sum life insurance is a concept that most of us are familiar with. Upon one’s passing, their beneficiaries receive a one-time lump sum payment of the sum insured. The rule of thumb with this type of insurance is that as one gets older, the premiums rise. This happens because the sum insured remains the same throughout the life of the policy, however the older one gets, the greater the risk to the insurance company of having to pay out. Whilst this is more affordable earlier in life, it will become a considerable expense the older one gets.
- Monthly Stipends
This is a relatively new concept in Israel. Upon one’s passing, their beneficiaries receive the monthly stipend insured for the pre-determined term. For example, if a 25 year old took out a 5,000 NIS a month policy for 30 years and passes away during that time, then the insurance company will pay out the monthly amount till the person insured would have reached age 55.
The advantage of this type of plan is that the premiums remain affordable throughout the life span of the policy, as the risk to the insurance company reduces with age. This type of plan can be useful as a supplement to the lump sum insurance, to provide additional monthly cover for the period when there is a greater financial risk to the family, eg. when one’s children are living at home and fully financially dependent on their parents. An additional advantage to this track is that the monthly payments are free of income tax.
- Lump sum policies for “uninsurable” people
There is currently one provider in Israel that offers a limited term life insurance plan for people with pre-existing medical conditions, who would otherwise be unable to obtain any level of life insurance at all. Premiums for this plan are significantly higher than regular term insurance for healthy people, however with no health declaration required, an otherwise “uninsurable” person now has the ability to provide some financial security for their family that they would have been unable to do so previously.
By law, all life insurances must be linked to the Madad (the CPI), as a result, the sums insured as well as the premiums have some kind of correlation to interest rates.
It is strongly recommended to sit with a professional in Israel, to ensure that you have the correct level and type of insurance in place, to protect the potential financial risk you pose to your family.