Updating Insurance Policies

Insurance is a crucial element in a carefully prepared financial plan. When creating a financial plan, take into account all the stages and changes in life, and adjust the elements of your plan — including various insurance options — to ensure that they all remain relevant and appropriate. All these factors take on an added dimension when you are considering making Aliyah, as insurance must be reassessed to ensure that it adequately reflects your new situation and needs.

First, let’s consider the basics: insurance is a crucial part of every well-rounded financial plan during one’s critical working years, irrespective of the country you are living in. Having sufficient and varied insurance coverage means that our assets are protected. And during our working years, our primary assets are our earning power and the ability to care for ourselves and our family. As we age, our insurance needs to change and must be customized to our individual situation and stage in life.

Ideally, your insurance policies will be tailor-made to suit your requirements and will be reassessed at each stage in life. When you’re newly married with a young family, your insurance needs are very different from that which you’ll require when approaching retirement. As the head of a young family, you need the security of life insurance and a disability pension to ensure that your family will be able to function effectively in the most adverse situation. Your concerns as you approach retirement should be directed towards your ability to sustain your desired lifestyle, in the event that you have no salary or employment income. During the retirement years, life insurance is often used for tax planning purposes and to protect assets.

Here are some common topics to be considered and spoken about with your insurance agent.

Insurance For Young Adults

There are many types of standard insurance. Young adults with no dependents usually focus on property insurance — insuring their property (whether it is their home, car, or other physical asset) against catastrophic events. Assuming that most of your property will remain behind when making Aliyah (most large items, including your home, car, and large furniture, will be sold prior to Aliyah), this type of insurance must be canceled or severely reduced.

In the event that you want to continue to pay foreign policies covering physical assets that are located in Israel (i.e., if you bring your car or jewelry to Israel but want your foreign insurance to continue covering it), you need to ensure that these policies remain valid internationally, and even more specifically in Israel. Verify this with your insurance agent and ask for official confirmation from the insurance company that it will continue to cover your property when in Israel or in transit to Israel. Even if you prefer local Israeli policies, don’t cancel your property insurance on items that you’ll be bringing to Israel, like jewelry, until there is a new policy in place.

Insurance for Young and Middle Aged Families

As you age and your responsibility to provide for and protect your family grows, other types of insurance need to be added to protect yourself and your family. Common options include life, disability, health, long-term care, and accident insurance. The types of insurance offered in Israel can be very different from those offered in other countries. Research the differences and decide which policies are necessary in your new life. A good insurance agent in Israel will be able to guide you through the different options available in order to help you make an informed decision about what will best suit your needs.

Keep in mind, however, that most insurance agents are compensated on a commission basis, so think carefully about your true needs before deciding on the types of insurance and the exact amounts. Often financial planners can help you evaluate your insurance needs without you worrying about what product they’re selling.

Note that each type of insurance plays a part in fulfilling a specific need, and these needs are more than just financial. For example, if you grew up in a home where a parent passed away at an early age, leaving the family to deal with financial hardship, it’s likely you’ll view life insurance in a very different manner than someone who never experienced any financial insecurity. Insurance fills an emotional need by providing security in the event of the unknown. Filling this legitimate psychological need provides real value, which is why the insurance business is a very large and developed industry.

Life Insurance

Verify that your life insurance policy is valid in Israel. Some companies define Israel as a war zone, allowing them to refuse to honor the policy. Confirm that terrorist attacks are not excluded from the policy. Ask your agent if there is any record of the life insurance company disputing claims made from Israel.

Life insurance is used as a sophisticated tax and estate planning tool in many countries around the world (including the United States).

Countries with estate taxes often have highly developed and regulated insurance products that can protect your assets and leave your estate with the necessary cash to pay estate taxes. Let’s consider an easy example: If you own real estate that is valued at ten million dollars, your estate might owe hundreds of thousands of dollars of estate tax. If you don’t want to force your heirs to sell the property, you could buy whole life insurance, whose proceeds will be available when you die, to pay the projected tax costs.

Buyer beware — Israel’s insurance market is structured in a very different way, thereby limiting the uses of life insurance. Because Israel does not currently have any estate tax, whole life insurance is not available in Israel. Israel’s life insurance products are all term-based. That means that any life insurance that you buy in Israel will expire at a certain point in time or after a certain term, for instance, when you turn sixty-five or seventy. So even though you might pay into a policy for many years, in the best case scenario you will outlive your policy by many years, and thus receive no payment at all, despite all the payments you’ve made!

If you continue to hold assets outside of Israel, or your home country continues to require you to pay estate taxes on international assets (like the United States does), consider whether to perhaps keep your whole life policies even after making Aliyah, in order to protect yourself against a future tax liability. This decision should be taken in the context of estate and tax planning. In most cases, if you need whole life insurance for tax structuring reasons, it makes sense to keep your life insurance policy in the currency of your future liability. In other words, if you think you’ll owe US dollars, keep your policy in US dollars in order to avoid unnecessary currency risk.

However, if you don’t anticipate needing your life insurance for estate planning, whole life insurance may not be the best use of your hard-earned dollars. Most financial planners (aside from some insurance agents!) consider whole life insurance to be an inefficient product. Why?

Whole life insurance combines both insurance and savings elements. Generally, the investment portion of the product is suboptimal, with high fees and commissions (both from the majority of the first year’s premium and up to several percentage points of the investment in subsequent years). It’s often very difficult to determine how much of one’s premium is going towards investment and how much towards insurance. Examine all options carefully.

Term life insurance can be much more economical if your primary consideration is providing for your family in the event of your absence. Twenty, thirty, and even forty year terms can be quite inexpensive.

Israeli term life insurance can be purchased as a stand-alone product or can be acquired through various local Israeli pension products (such as keren pensiah and bituach menahalim savings plans — see “Retirement and Estate Planning in Israel,” for more details). Policies are renewable yearly, but generally at higher premiums, so as you age you can expect to be paying much higher premiums. While Israel does offer fixed-priced policies, they are much less common and are generally more expensive than similar products around the world.

Advantages to keeping your life insurance policy separate from your pension plan are significant. Long-term Israeli pension savings policies tend to be structured in a very complex manner that is difficult for the average person to comprehend. The lack of financial transparency in the insurance industry makes it nearly impossible to know exactly how much you’re paying for what. Purchasing your life insurance separately gives you the information necessary to assess on a yearly basis how much life insurance you want and, more importantly, how much you can afford. Furthermore, when life insurance is coupled with a pension policy, it renews automatically at a higher rate, with more and more of your contributions going towards insurance rather than savings — not always the ideal situation.

On the other hand, the often-quoted advantage for keeping insurance inside a pension policy is that you receive a tax benefit on your insurance payment. However, note that this tax saving is also available if your entire contribution to your pension was made towards savings, so you’re not losing anything by having the life insurance outside your pension.

Compare your existing policy with a new Israeli policy before canceling the existing policy, as it is much more difficult to obtain insurance policies in your home country once you’ve moved away. Until very recently, it was impossible to acquire US-based insurance products post-Aliyah. Currently, there are a small number of insurance agents who offer US policies to Americans (and even non-Americans) who are living in Israel. However, you still need to return to the United States to undergo a physical examination and to sign the paperwork. It may be worth it — often American term policies can be significantly cheaper than comparable standard Israeli policies.

Note that as you age, insurance should be reduced due to the following critical factors.

As you save money for your retirement, these savings become a substitute for insurance. Why continue to pay for life insurance if you have other means of supporting your family in the event of your untimely passing?

As you get older, the cost of insurance premiums goes up. Most policies in Israel are priced to increase yearly until they become very expensive for someone in his fifties or sixties. At that stage of life, many people cannot afford the same insurance coverage they used to have. While it’s possible to buy term insurance in Israel with fixed premiums for the life of the policy, these policies are often problematic: they assume you’ll need the same amount of life insurance as you age, which is not necessarily true (as noted above in point 1).

Life insurance policies in Israel end at a specific age, usually sixty-five or seventy. As you approach this age, your chances of needing insurance is reduced as the number of remaining years to the policy decreases.

If you’ve successfully managed to save money and invest it wisely during your working years, you are likely not to need life insurance at this stage, since there are savings to fall back on.

As retirement approaches, in your fifties and sixties, your day-to-day living expenses and those of your dependents generally go down, thus reducing the amount of insurance you need.

Assessing Your Insurance Needs

People often own old policies, taken out many years ago, that are no longer relevant to their current financial situation. Making Aliyah offers the opportunity to reevaluate your current policies and optimize them to your new requirements. The biggest question to ask regarding most types of insurance (including life insurance) is whether you can truly afford the extra cost. Insurance that was affordable in your home country at a certain salary level may be unaffordable in Israel.

Insurance policies are extremely complicated and confusing, and obviously in Israel when they are in Hebrew it becomes even more complicated for many.   A couple came to my office with a stack of retirement policies.  They confessed to feeling slightly incompetent that they were unable to identify any major feature in any of the policies.  I tried to reassure them that their competence was not in question, as the whole system sometimes seems to be skewed against simplicity and clarity.  And if I hadn’t managed to convince them at the start of the meeting, they certainly agreed by the time we finally made order of their policies and life insurance outlays.

After reviewing and assessing the level of life insurance that they felt they needed, they returned to their life insurance agent to clarify the issue.  Despite being armed with a list of their needs and policy information, it took them several conversations until they received the information they requested (unfortunately this is all too common an occurrence when trying to get straight answers about your policies).   It turns out that they were paying much more than they thought – and in no way was this because they were remotely incompetent – simply their fees were not being reported to them openly in their retirement policies.   When they tried cancelling the life insurance in their retirement policy, their agent was vehemently opposed and attempted to convince them otherwise.

In a follow up meeting with the couple I explained why and how they needed to continue with the change until they understood the rationale and were able to force the agent to implement their changes.

The reason I am sharing this story is because so many people are in the very similar situation of not having a clear picture of exactly how much they pay every year for their life insurance.

In theory, the government mandated retirement savings programs in Israel mean that Israelis have a better chance of accumulating significant savings for retirement.  I often point out to olim that the mandatory pension contribution system is one feature of our financial system that helps the average person save tremendous amounts of money towards retirement.    While savings rates in many western countries languish in the lower single digits, the percentages saved by the average Israeli are high in comparison.  Minimum obligatory savings rates approach 20% while the average professional in Israel can often end up saving closer to 30% of their pre-tax salary. 

So although the fact that Israelis are ‘forced’ to save via pension funds such as bituach menahalim, kupot gemel etc sounds incredibly helpful and productive, there are two very important variables that can have negative impact on your savings:

Life insurance
– Withdrawing funds over the course of your working years

The differences between the various policies and investment options are beyond the scope of this section, but most pension products include an insurance component; sometimes this is built into the product while other times it is a separate add-on that must be approved/chosen by the client.  And while many regulatory changes have definitely made it easier for the average person to understand their pensions, projected savings and insurance components, unfortunately there’s still a high degree of complexity.  And most people don’t realize the degree to which insurance eats away at their long term savings.

Life insurance by nature is generally cheaper when we are younger, and grows as we age.  A million shekel life insurance policy for a healthy thirty year old will be a fraction of the cost of that of a healthy sixty year old.  If we don’t understand how much we are paying for insurance and how that will grow over time we are liable to see more of our savings going to insurance and less to our long term savings.

That’s why I recommend to many of my clients to separate their long term savings plan from their life insurance policies.  If you get a separate bill for life insurance on a yearly basis you will know exactly what you are paying and make educated decisions as to the level of insurance you require and how much you want to spend on it.

The more time you remain unaware of the increasing amount you are spending on life insurance the less funds are being channeled in the direction of your savings where they would serve you much more productively.

Obviously everyone needs life insurance, but it must be managed in a transparent manner and assessed every year or two, and not rolled over automatically from the initial pension plan that you signed off at the beginning of your career.

Those high percentages I mentioned earlier obviously only work for you if you avoid accessing the money.  Your funds will grow exponentially over time if left to compound.  And while keren hishtalmut and pitzuim can be a great source of cash flow when they become available, make every effort to avoid touching them if possible.

Don’t ignore your pension and life insurance reports.  Just because they suited your needs when you set them up initially doesn’t mean that they are serving you properly now.  Sit down and work out how much you are paying for your life, disability and medical insurance and decide how much you need.  If you can’t make sense of these unnecessarily complex reports, don’t be discouraged.  Ask someone to help you.  And keep asking questions until you get the information and answers you require.  And then based on that information adjust your policies to suit your needs … and continue to assess them every year.

And if you are just beginning to work in Israel then use the above information to guide you so that you have clarity regarding your policies from the start.

In many cases, it pays to (partially) self-insure by saving for a rainy day, instead of only paying large sums into policies that you might never need. As they grow, these savings provide your own safety net for your family. Go over your expenses to see whether you can really afford the insurance, and at what level of coverage (i.e., how much). I’m not recommending canceling all your insurance policies. We’d all like to be comprehensively insured for every possibility, but in most cases that’s just not realistic, given our budget constraints. Be sure to check with a financial planner and your insurance agent before canceling any policies. Adjust your insurance policies every number of years as necessary, and then you can forget all about them and enjoy life to the fullest!

Disability Insurance

The second major type of insurance to consider is disability insurance. Even with extensive savings and an emergency fund reserve, the inability to work for an extended period of time may quickly drain your resources. Disability insurance ensures that in the event that you’re unable to work due to injury or illness, a minimum amount of income will be provided to cover your ordinary day-to-day living expenses. Disability insurance is one of the most expensive insurance products on the market because chances are good that you’ll need to make a claim on your policy at some time during your working career. In the United States, someone who is thirty-five years old has a 50% chance of disability for ninety days or more before he turns sixty- five. At age forty-two, it is four times more likely that he will become seriously disabled than die during his working years.

While many countries have well- developed social welfare systems that will cover a minimum level of income (like Social Security insurance in the United States), Israel’s national insurance or Bituach Leumi is known to have quite strict definitions of disability. The amount of money payable is generally not sufficient to support a family, especially an oleh family with a higher standard of living than the average Israeli family. For this reason, most workers in Israel supplement their national insurance with private disability insurance, which generally covers a worker for up to 70% of his current salary.

While disability insurance can be sold as a stand-alone policy, it is common for workers to include it in their pension plans, together with life insurance, as described above. Costs vary greatly depending on your age, medical history, and whether you join a group policy, which is generally available through large company employers. Group policies can be highly advantageous, as they are usually cheaper and don’t require a separate medical evaluation.

There are two major types of policies to be familiar with before choosing a long-term disability plan: (1) occupation-centered policies, and (2) general disability policies offered by pension funds.

Occupation-centered policies are the least restrictive, and in the event that you are unable to work at your specific occupation, your insurance company will pay your claim, even if you are able to work at other occupations. These private occupation centered policies are generally available through bituach menahalim pension  or as stand-alone policies.

General disability policies, found in pension funds, in contrast, provide a more restrictive definition and only pay out if you are no longer able to work in any field. This restriction can be very problematic for many professionals who might not be able to work in their field, but still might be able to work in other professions, or take on nonprofessional work.

When setting up your disability policy, make sure that you know which policy is being offered and how much it’s going to cost (otherwise it will get buried together with everything else in your pension savings policy, and you’ll never be able to evaluate whether it’s still critical to you as you age). When you’re thirty and expecting to work for the next thirty-five to forty years, it’s more critical to have disability insurance, and it’s generally more inexpensive. But because these policies generally limit their payouts until the mandated retirement age (in Israel, currently sixty-two for women sixty-seven for men – although the legislation regarding  the retirement age for women born after March 1956 is being debated), such a policy might be much less valuable to someone in his sixties, especially as the policy gets increasingly expensive.

Other major considerations include:

the waiting period prior to the time that benefits start being paid (this can be a very short period of time or several months long)

the length of time the benefit will be paid out

whether the payment is connected to the cost of living index. As mentioned earlier regarding life insurance, prior to canceling existing disability policies in your home country, ensure that you’re covered by a new policy in Israel.

Evaluate your existing disability policy:

Is it valid in Israel?

Is it valid when you aren’t working? (Some policies will only protect your income stream if you’re working, while others provide insurance coverage even if you’re between jobs.)

Can you afford the premiums?

Does your old policy meet your changing needs better than an equivalent Israeli policy?

If your old policy won’t meet your needs, consult a licensed insurance agent and quickly move to an Israeli equivalent. Keep in mind that while an insurance agent’s job is to sell insurance, your job is to ensure that the insurance package being offered meets your needs, within your financial constraints. Speak with multiple agents to get quotes on your insurance, as rates can vary significantly. Speak to your friends, oleh organizations, and other professionals to get referrals to trusted agents who have experience working with olim.

Long-term Care Insurance

An additional type of insurance that is commonly marketed and has become increasingly popular in recent years is long-term care or se’udi insurance. Its objective is to provide financial support to the insured in the event that he or she needs long-term medical assistance or nursing care. As life expectancy continues to grow, so do the chances that you’ll need long term medical assistance. Most people with medical issues prefer to stay at home as long as possible and often hire part- or full-time caregivers, if they can afford to do so.

Bituach Leumi will fund fifteen to twenty hours of care per week if a person qualifies, but it won’t cover full-time care at home. Changes in the system are in the works currently and they should improve the overall situation for people in need of long-term care but the proposed change will not solve all issues. 

Private long-term care insurance, offered by the Israeli health funds as well as by private insurance companies, will help pay for the additional care you need. The health funds’ policies are generally cheaper than the insurance companies’ policies, but their benefits are more limited. Funding is limited to a specified period of time (and not for a lifetime), usually between three to five years. While this period of time might be sufficient on average, because we can’t base our financial plan on averages, you need to be able to supplement this insurance with your savings. Lifetime private policies are available with insurance companies, but their cost is substantially higher.

For someone who needs full-time assistance outside of the home, nursing homes provide the most comprehensive care available. Government nursing-care facilities range from NIS 6,000 to NIS 15,000 depending on the geographical location (not including extra services or personal needs), while private facilities average between NIS 15,000 and NIS 20,000 a month. While Bituach Leumi might cover part of the cost of nursing home facilities (NIS 1,500–1,800 monthly), there is a major shortage of spots available in government facilities, a problem which is increasing as the population ages.

Although long-term care insurance can be very beneficial, it isn’t for everyone. When you’re young, their cost is inexpensive, but you can end up paying for insurance for forty or more years without ever needing it.

An alternative to long-term care insurance is creating a savings plan and investing the same money you would have spent on the insurance to save for retirement and your future medical needs. This type of self-insurance gives you the ability to save for whatever your long-term needs are, and not just for long-term care. Because you almost certainly won’t need to use the insurance until you’re well into retirement, the long-term horizon for savings gives you lots of time to prepare, unlike life insurance which may become necessary at any time.

Many of the same issues mentioned above with regards to disability insurance and life insurance apply to long-term care insurance as well:

– If you own a foreign policy (which is often very expensive), evaluate whether it’s valid in Israel, affordable, and meets your needs more than similar Israeli policies.

– Israeli policies become significantly more expensive as you get older, so assess whether you can afford to spend hundreds or even thousands of shekels on insurance monthly.

– Consult with a financial planner and an insurance agent to assess your specific financial constraints and put a plan in place for your long-term needs.

Your Insurance 'To Do' List

Verify the status of all your existing insurance policies to ascertain the possible benefits of maintaining them when you move.

Verify that all policies you have are valid in Israel and do not define Israel as a war zone or exclude terrorist acts.

Consult with a licensed insurance agent or financial planner before canceling current policies or initiating new insurance policies in Israel.

Familiarize yourself with the differences in life insurance policies in Israel and abroad, and then shop around for the policy that best meets your needs.

Compare Israeli disability insurance options to policies abroad.

Ensure that your insurance fulfills your needs and that you’ll be able to afford it in Israel.

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