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insurance: part 1: what insurance is and what you need

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

Insurance is one of those touchy subjects where a fine line must be walked.  On one hand you don’t want to be unprepared in case of disaster; on the other hand, you don’t want to waste money while at the same time encourage your close relatives to pray for your demise so they can strike it big.  And as usual, American insurance companies aim to strike exactly the wrong balance.  I grew up watching commercials for life insurance where some elderly couple talks about (1) how important life insurance is (2) how inexpensive their policy costs and (3) how great they feel now that they have the policy.  Now seriously, why would an old couple need life insurance?  They seem to have no dependants.  No one would suffer financially if they die.

On the other hand, many young couple with small children suffer financial disaster when loosing a loved one.  How often do we hear about some Kollel guy who tragically died and left a wife and ten kids with no money?  This man has doomed his family to a life of begging because he was too foolish to get insurance.

Just because death is taboo, does not mean one should ignore the subject of insurance.

In the following posts, I plan to approach the subject by discussing::

(1)   What insurance is and what you need

(2)   How to get insurance and review your policies

This post will discuss part 1 – What insurance is and what you need

Insurance is a transference of risk; nothing more.  If you have a risk you don’t want to have, you can pay an insurance company to absorb it for you.  And we all have risks in our lives.  What if you die tomorrow – what will become of your family?  What if you become disabled?  What if your identity is stolen?  What if your house burns down?

So what kind of insurance do you need?  There are 6 basic types of insurance:

(this list is taken from Dave Ramsey and adjusted for Israel)

(1)  Health (בריאות) – This is mostly covered by bituach leumi and your kuppat holim.  Most kuppot have the option of extra insurance for additional treatments.  I am still unsure if they are worth it.  Additionally, you can buy extra insurance for more treatments and operations al over the world.  I would advise that if you do not get the additional insurance, begin setting aside your own money every month and become self insured in case you need one of these treatments.

(3)  Long-term care (סיעודי) – This kind of insurance covers you if you cannot do basic funtions such as easting, getting up and sing the bathroom (it also covers alzheimers).  Some decide to get it from a young age, but some people advise to get this around age 60.  The cost of old age facilities is outrageous (although much worse in the US than in Israel), and if you do not want do go through your life savings in a few short months, you will probably need this insurance.

(3)  Disability (נכות)– What would happen if you became disabled tomorrow?  This is partly covered by bituach leumi and usually partially by your keren pensia.  If you have a keren pensia, you cannot buy any more.  If you do not have a keren pensia you should buy some extra.

(4)  Life insurance (חיים) – This is probably one of the most basic types of insurance that every person needs and few understand.  There is one golden rule for life insurance: the more dependants you have the more life insurance you need. If you are retied and all your children have moved out and live on their own, you no longer need any life insurance.  On the other hand, if you are young and married with children, you need a fair amount of insurance.  How much?  Probably about 10 years worth of expenses – for example, if your family spends ₪ 200,000 a year, you should be insured for ₪ 2,000,000.  And remember to insure both spouses, even if one does not work.  After all, if a stay at home parent dies, you’ll have to hire someone to help out around the house, babysit etc. and your expenses will skyrocket.

Life insurance is partially covered by bituach leumi and usually partially by your keren pensia as well, except in place of a lump sum, they will pay a portion or all of your salary to your dependents as a sort of annuity.

 Do not be put off by the cost of life insurance.  You’d be surprised how inexpensive a ₪ 5,000,000 regular term life insurance costs (I’ll discuss how to buy insurance in an upcoming post).  It is much better to spend the few shekels now for insurance than risk sentencing your family to a life of begging if you die.  Death alone is a tragedy; there is no need to add more sorrow to it.

(5)  Homeowner’s/renters – If you own a home, you need this.  If you rent, it is often covered by the rental agreement, but if it is not, then you need it as well.  Find out what happens if you house burns down, is broken into, or anything else.  If the answer isn’t great, you need insurance

(6)  Auto – By law, you are required to get bituach chova, which only covers physical injury for you or the person you hit.  The insurance for damaging someone else’s car (tzad gimel) is optional, as is insurance to cover any damage done to your car (meikif, which also includes tzad gimmel and chova).  I would strongly advise always having chova and tzad gimmel.  If your car is worth a lot, then get Meikif as well.

In part 2, we’ll discuss how to get insurance and review your policies.

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