2 October 2014

Mortgage insurance: Are you covered for third-party liability?

Your mortgage insurance might seem like a great deal, but it is only if it covers everything you need.  Does yours include third-party liability?

What is third-party liability insurance?
Third-party liability insurance (‘ביטוח צד ג / bituach tzad gimmel or ביטוח כלפי צד שלישי / bituach klapei tzad shlishi) covers damage that occurs in your home which causes damage to the homes of others.  One of the most common scenarios that results in third-party damages is when a pipe in your apartment bursts and there is resulting damage in an adjacent apartment.  If you have third-party liability insurance, then the insurance company will cover the costs of your neighbor’s repairs.  If you don’t, you can be held directly responsible.

I think I have mortgage insurance already.  Isn’t third-party insurance liability included?
If you have a mortgage, your mortgage lender will require you to have both life (ביטוח חיים / bituach chayim) and structure (ביטוח מבנה / bituach mivne) insurance policies.  These protect the lender (and the borrower) in case of the death of one or more of the borrowers or in the case of damage to the apartment.

Third-party liability is an optional coverage, just as is contents’ insurance.

Why wouldn’t I have third-party liability insurance?
According to stats from about two years ago, approximately 70% of Israelis buy their mortgage insurance products through the bank where they took out their mortgage.  By order of the Insurance Supervisor, banks cannot sell you third-party liability insurance.  In other words, if you have your mortgage insurance policies through your bank, chances are you do not have third-party liability insurance.

In addition, some insurance companies may leave it out of the quote they give you so as to make their offer seem slightly better than it would be otherwise.

Can you keep standalone third-party liability insurance?
Let’s say you have your mortgage insurance through your bank and you don’t want to move to an insurance company.  Is it possible to maintain your policies through the bank and purchase third-party liability insurance separately?  Based on my inquiries with two insurance agents, it is not.  Insurance companies seem to be selling third-party liability insurance as a rider to structure insurance and are therefore unwilling or unable to sell these policies separately.  So, if you want to protect yourself with third-party liability insurance, you may have to take your structure policy to an insurance company as well.

Third-party liability insurance shouldn’t be expensive
In my experience, adding third-party liability insurance was about 10 NIS per month.  To have hundreds of thousands of NIS of coverage in the event of something in my home causing damage to neighbors, it is well worth the expense.

 

Especially if your policies are at a bank or a direct insurance company, check into whether you currently have third-party liability insurance, and contact a trusted insurance agent to set it up for you if you need it!

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