When purchasing a property with a mortgage in Israel, the mortgage provider requires the owner of the property to take out 2 types of insurance.
* Structure Insurance
* Mortgage Life Insurance
This legal requirement provides protection to the property owner.
Before this requirement was in place, a family whose breadwinner either died or lost the ability to work as a result of an accident or disability, would be in severe danger of having their property repossessed as a result of the inability to meet the mortgage repayments.
Likewise, if there was severe structural damage to the property, the home owners invariably failed to meet the mortgage repayments in addition to laying out for the structural repairs.
Buying a home can often be a stressful time, and at times, the time limits involved in signing contracts between kablanim (building contractors), previous home owners, realtors and mortgage providers, means that home owners seldom purchase the appropriate insurances at the correct prices.
Many providers of the mortgage life insurance give a straight term insurance to cover the mortgage taken. They often fail to provide the more appropriate decreasing term insurance.
e.g. If a mortgage of $100,000 was taken over a 25 year period, many insurance providers, (often through the mortgage providers) will give a mortgage life insurance to cover the full $100,000 for the full duration of the 25 years.
What many people fail to realise, is that over the course of the 25 years, the actual mortgage decreases, and as a result, the mortgage life insurance should decrease in line with the decreasing mortgage. So whilst at the start of the 25 years a $100,000 mortgage life cover was required, in the latter years, a sum of less than $10,000 mortgage cover will be required, at a fraction of the cost of the more expensive straight term cover.
In the event that you have erroneously taken out a straight term mortgage life insurance, Goldfus Insurance and Investments will be able take over the plan and replace it with a decreasing term mortgage life insurance.
Structure insurance is calculated in two possible ways:
* The rebuild value of the property i.e. the sum it would cost to rebuild the property. This is calculated according to the size of the land and the area in square metres of the property.
* The market value of the property.
If the first type of structure insurance is taken, then owner will receive the sum of money insured to rebuild the house. This is usually cheaper than the market value of the house. In the event of the insurance being based on the market value of the property, the key will be handed over to the insurance company in exchange for the market value, so that they can purchase a new home.
Goldfus Insurance and Investments takes no responsibility for changes in Israeli legislation that may alter the accuracy of the above information.
This article has been re-printed with the kind permission of Goldfus insurance