Articles & Tools

Life and disability insurance

Author: Tamir Ben-Shlomi, Insurance Consultant and Bell System
Why are death and disability insurance so important?

Who does not insure their car with comprehensive insurance? Most people insure their apartment and some even go to the trouble of insuring their washing machine. The choice to take out insurance stems from an understanding of the possible risks to property and from a desire to protect against financial loss in case of damage.

On the other hand, awareness of insurance on the person himself – in cases of death or disability, God forbid – is lower. This situation is due to several factors:

  • There is a common misconception among the population regarding the magnitude and significance of risks.
  • Lack of knowledge and ability to deal with the fine print insurance policies.
  • Unwillingness to think about worst-case scenarios of physical injury, illness or death, God forbid.

The result of the reluctance to deal with the issue sometimes leads to financial unpreparedness in a situation in which household income will be harmed in the event of death or loss of work capacity.

For example, a person who has not insured his car with comprehensive insurance, usually does not take too great a financial risk. In the most extreme case, he will lose the entire value of his vehicle. Such a loss will usually be on the order of tens of thousands of shekels. On the other hand, a person whose monthly income is NIS 8,000 and finds himself in a situation where he has lost his ability to work for two years, has to deal with damage of close to NIS 200,000 (the amount he was supposed to earn in 24 months).

Another example, a person who passed away ten years before retirement age and whose monthly income was NIS 8,000, his widow and survivors will have to deal with a shortfall of income of about NIS 1 million (NIS 8,000 multiplied by 10 years multiplied by 12 months).

For most of the population, such situations will quickly lead to a decline in the standard of living, the accumulation of debts, and even the appeal for help from various welfare agencies.

What insurances provide a solution and what kind of response?

Types of insurance

“Classic” life insurance

Life insurance as a plan in itself, guarantees a predetermined amount of compensation. In case of death, the heirs of the insured will receive the amount of compensation determined plus indexation to the consumer price index.

Mortgage life insurance

Life insurance made in accordance with the bank’s requirement when taking out a mortgage. It is intended to ensure the repayment of mortgage funds to the bank even in the event of the death of the borrower. The amount of insurance is determined by the amount of the mortgage. The insurance is pledged to the bank and therefore in case of death the insurance funds will be transferred to the bank directly.

Important to know! Mortgage life insurance can be done not only at the bank where the mortgage was taken, insurance companies and agents will be happy to insure you sometimes even at much cheaper prices.

In any case, it should be remembered that mortgage life insurance is not a substitute for “classic” life insurance, but is a solution for the purpose of obtaining a mortgage only.

Insurance within the framework of pension savings

Life Insurance

This insurance is called survivors’ pension or additional life insurance, depending on the pension plan of the insured, as detailed below.

In a pension fund, insurance is called survivors’ pension. The funds set aside for the pension fund are intended both for savings after retirement age and for life insurance in case of death. Survivors’ pension is part of the insurance component of the pension track. In case of death, the funds are paid as a monthly allowance to the survivors of the insured (spouse and children). The amount of the pension is determined according to the salary and age of the insured.

In executive insurance – this is additional life insurance purchased with part of the pension contributions. As with “classic” life insurance, here too the amount of compensation is paid as a lump sum. The amount of insurance is determined by the insured at the time of signing the executive insurance policy.

Income insurance

This is insurance that aims to ensure a stable monthly income for the family even when the insured is unable to work as a result of an accident or illness. Insurance is done within the framework of pension contributions from the workplace or as part of a private policy. The amount of compensation can reach 75% of the insured salary and will be paid as a monthly allowance until the insured reaches retirement age (age 67 for men, age 64 for women). In income insurance, it is worth knowing about the difference that exists whether the insurance is in the framework of executive insurance or in a pension fund.

In a pension fund– this insurance is called a disability pension. The main disadvantage of coverage in this framework is that it is not possible to receive compensation for loss of professional work capacity. In other words, if an employee cannot work in his specific profession, he will be required to find a job that matches his education and abilities.

For example, a salesperson whose speech ability has been impaired and who can no longer engage in sales but otherwise feels good, if a pension fund insured is asked to find another job that does not require speech and that matches his education and experience.

In executive insurance – this insurance is calledloss of work capacity and it allows compensation in case of loss of professional workcapacity. This means that an event of incapacity can be defined according to the specific profession of the insured. Therefore, if the insured is unable following the incident to engage in the specific occupation in which he was engaged, even though he can engage in other occupations, he will receive compensation from the insurance for loss of work capacity.

For example, the loss of the ability to speak a salesperson will be considered a loss of work capacity if he is insured by executive insurance.

The cost of insurance and how to receive compensation

The price of life insurance is determined depending on the age of the insured and his medical condition. Important to know! A policyholder who smokes will pay a significantly higher amount than a guaranteed non-smoker.

Payment on a life insurance policy (premium) can be made in two main tracks: variable premium or fixed premium. The variablepremium track is considered a default in life insurance. In this track, the price changes each year in accordance with the increase in the age of the insured and the increase in the consumer price index.

As a rule, as the age of the insured increases, the annual premium increases.

In the fixed premium track,the price for the year remains constant throughout the insurance period and is adjusted only for changes inthe consumer price index. Compared to the variable premium track, the starting price is very high because it subsidizes the low cost in later ages.

Depending on the type of policy, the insurance company can paybeneficiaries (usually the legal heirs of the insured) the compensation amounts of life insurance in two ways. One way is a lump sum that is transferred at the death of the insured to the beneficiaries and they may use it for all their needs at their discretion. The second way is a monthly allowance that is transferred to beneficiaries after death. The allowance is transferred until the end of the insurance amount or until the end of the insurance period (depending on the terms of the policy).

In conclusion, every family breadwinner must be aware of the economic risks to his family in the event of his premature death or in case of loss of his ability to work and earn a living. He must be familiar with the insurance options available to him and act so that his family can cope and stand on its feet financially even in these difficult cases.

Please note that the information and answers provided are general and partial only and are not intended to replace professional personal advice, based on the applicant’s personal data. If you decide to act on the basis of this information, you bear full and exclusive responsibility for your action and its results, and there will be no responsibility for the organization of Paamonim or anyone acting on its behalf.

עיצוב ללא שם (12)

Elevating the Professionalism of Paamonim’s Support System

Over the past year, Paamonim’s support system, providing mentorship and guidance, has seen substantial enhancements. Previously, our family support services…
עיצוב ללא שם (13)

Read about Liraz and Avi’s experience with Paamonim

Liraz and Avi, a couple residing in central Israel, have been happily married for five years. They have two young…

“After the holidays”- Everything takes on a fresh start

We’ve all heard the familiar saying “after the holidays”, often used in Israel as the most common excuse for procrastination.…
עיצוב ללא שם (5)

Paamonim’s latest Activities

Latest updates: Paamonim’s Financial College Paamonim’s College for Financial Education is committed to providing inclusive financial education to a wider…
Skip to content