When the bank grants you a mortgage loan, it takes a significant risk. To protect its money, the bank requires two types of insurance as a condition for receiving the funds: life insurance and structure insurance. Together, they are called 'mortgage insurance'. But it's important to understand – this insurance doesn't just protect the bank, it also provides a critical safety net for you and your family.
As part of first-time home mortgage consulting, many young couples are surprised to discover that the monthly payment isn't just comprised of principal and interest, but also includes a monthly insurance payment that can reach hundreds of shekels. A deep understanding of insurance components can save you thousands of shekels over the life of the mortgage.
The purpose of life insurance is to ensure that in case of the death of one of the borrowers, God forbid, the insurance company will pay the bank the remaining mortgage balance. This prevents a situation where the surviving spouse or heirs are left with a heavy debt they cannot handle, and might lose the home.
Structure insurance is designed to cover physical damage to the property itself, such as fire, earthquake, pipe explosion and natural disasters. The bank requires this insurance to ensure that its collateral (the apartment) doesn't lose its value in case of disaster.
One of the common questions in the mortgage consulting process is where to purchase the insurance. Banks offer mortgage insurance through agencies affiliated with them, and sometimes this seems like the most convenient solution – 'everything in one place'. However, this convenience sometimes has a price.
Purchasing insurance through a private insurance agent or directly from insurance companies may be significantly cheaper. Additionally, private policies may include better extensions and coverage (such as third-party coverage in structure insurance) that aren't always included in the bank's basic policy.
Important tip: Even if you took insurance through the bank, you can switch it at any time to cheaper external insurance, without penalties.
Don't accept the first offer. The market is very competitive, and price gaps can reach tens of percent. A quick check can save hundreds of shekels per year.
Fill out the health declaration seriously. Hiding information could lead to claim rejection at the moment of truth. If your health condition has improved (for example, you stopped smoking), update the policy to reduce the premium.
Just like performing mortgage refinancing and improving interest rate conditions, it's recommended to check your insurance portfolio once every few years. Insurance rates change and new discounts emerge in the market.
Professional mortgage consulting takes into account all costs – including insurance. We'd be happy to help you build a smart mortgage mix that sees your complete financial picture.
