Fires Spark Renewed Interest in Home Insurance in Israel

Banks typically demand that mortgage holders insure their properties, but that only covers the structure not the contents.

A home on fire in Zichron Yaakov, November 22,2016.
Rami Shllush

The latest spate of fires in Israel has brought an old issue back into the spotlight – home insurance, or the lack of it. Some 40% of Israelis lack home insurance, according to the Finance Ministry.

In the event of a fire, those lacking insurance may find themselves facing heavy damage. Even those with insurance might learn that the payout is significantly less than they expected.

The percentage of insured homes in Israel is relatively high compared to the OECD average. That’s because banks insist homeowners insure their homes as a condition of their mortgage. However, banks only require that homeowners insure the structure, which includes the walls, built-in closets and wall-to-wall carpeting. Many homeowners buy this insurance directly from the bank.

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The home’s contents need a separate type of insurance policy. On average, each type of insurance costs about 600 shekels a year.

Half of all the people with home insurance have only insurance for the structure, not the contents.

Furthermore, most structural insurance will not pay out the full cost of the home, in the event of the fire. Generally, the insurance is only for the cost of rebuilding the structure itself, not the land cost. For a single-family home, that might be enough – presume a 1.5 million shekel home, where 1 million shekels is the cost of the land and 500,000 shekels the cost of building the home. In the case of a fire, the insurance would pay out 500,000 shekels, though it’s worth noting that the insurance payments aren’t calculated according to a particularly high standard of construction.

The problem arises for people who live in apartments. They are likely to need more than the cost of building an individual apartment in order to restore their building after a fire.

In such cases, homeowners can buy an additional insurance policy, which insures homes for a sum determined by the policy-holders themselves.

If the fire is caused by what the state determines to be a terror attack or a natural disaster, home owners can file a petition to the Tax Authority’s purchase tax department for compensation.