Life Insurance and Your Mashkanta in Israel: Avoid Overpaying

If you take out a mashkanta (mortgage) in Israel, the bank will almost always ask you to take out life insurance linked to the loan: it is an almost systematic condition for obtaining the financing. What many borrowers do not know, however, is that they have the right to choose their own insurer rather than automatically accepting the contract offered by the bank, which can mean a significant difference in cost over the life of the loan.

Why the bank requires life insurance for the mashkanta

From the bank's point of view, a mortgage is a commitment that can stretch over fifteen, twenty or thirty years. If the borrower dies before having repaid the whole loan, the bank wants to be certain of recovering the outstanding capital. Life insurance linked to the mashkanta meets exactly this need: if the insured person dies during the term of the loan, the insurer pays the bank the remaining balance of the loan, which protects both the lender and the borrower's family, who do not have to bear alone the repayment of a property at an already difficult time.

In practice, insurance linked to a mortgage in Israel generally has two separate parts: life insurance on the borrower (sometimes called "chayei"), and property insurance on the property itself (fire, water damage, building structure), often called "mivne". Both are generally required before the bank releases the funds.

The classic trap: accepting the bank's offer without comparing

When you sign your mashkanta, the bank almost always offers its own insurance, or that of a partner insurer, built directly into the sign-up process. It is convenient and quick, and many borrowers sign without asking questions, especially when they are discovering the Israeli banking system for the first time as olim or expatriates.

The essential point to understand is this: the bank has the right to require that you are covered by life insurance for the amount of the loan, with the bank named as beneficiary up to the outstanding capital. However, it does not have the right to impose a specific insurer on you, as long as the policy you present meets the required cover conditions. In other words, in the vast majority of cases you can take out your mashkanta life insurance with the insurer of your choice and simply send the certificate of cover to the bank.

Why this freedom of choice can help you avoid overpaying

This ability to choose your insurer freely is important, because rates and conditions vary from one insurer to another for the same level of cover. An offer built into the bank's process is not necessarily the best suited to your profile: your age, your health, the amount borrowed and the length of the loan strongly influence the final cost, and a contract designed for a generic profile is not always optimised for your personal situation.

Having an independent broker compare your situation, rather than signing the offer made at the counter, generally gets you equivalent or better cover at a better-adjusted cost. It is also a chance to check points that are often overlooked: the exact definition of the exclusions, the possibility of keeping or transferring the contract in case of refinancing (mihzur mashkanta) or a change of property, and the consistency between the insured capital and the capital actually outstanding as repayment goes on.

A capital that falls with the loan balance

A point that borrowers often misunderstand concerns the very nature of the insured capital. Unlike standard life insurance, where the guaranteed capital stays fixed for the whole term of the contract, insurance linked to a mashkanta is generally designed to follow the gradual fall in the outstanding capital as repayments are made. This is logical from the bank's point of view, since its need for protection falls with the loan balance, but it also means that the premium should, in theory, be calculated consistently with this decreasing profile. A badly calibrated contract, with a capital that stays artificially high compared with the balance actually owed, amounts to paying for cover you no longer need.

What to check before signing

Before approving life insurance linked to your mashkanta, a few points deserve particular attention. First, make sure the insured capital matches the amount borrowed, no more and no less: over-insurance makes you pay an unnecessarily high premium, while under-insurance leaves a risk of a shortfall for the family. Next, check the medical questionnaire completed at the time of sign-up: an incomplete or inaccurate declaration can, in the event of a claim, be used by the insurer to contest payment, which is particularly problematic for a loan taken out over several decades. Finally, if you are co-borrowers (for example as a couple), clarify with your broker how the cover is shared between the two borrowers, because practices vary from contract to contract.

For a francophone oleh or expatriate, these procedures in Hebrew, in a banking system different from the one you know in France, can seem intimidating. This is precisely the role of a French-speaking broker specialising in life and death insurance in Israel : to explain each clause in French, to compare several insurers for you, and to help you avoid paying more than necessary for cover imposed by the bank but whose provider you choose freely.

If you are starting a mashkanta or simply want to check that your current insurance is not overpriced, do not hesitate to contact us via our contact page for a free, no-obligation conversation.