Home Insurance Policies May Leave Owners Underinsured Amid Rising Construction Costs

Many homeowners in Israel may be underinsured due to outdated apartment insurance policies that do not reflect the significant increase in construction costs over recent years. This could lead to a substantial financial shortfall if a property is destroyed by an event like a missile strike or earthquake, as the insurance payout might not cover the actual expense of rebuilding.

Construction expenses, including labor, materials, planning, and execution, have dramatically risen. While policies often renew automatically, the insured sum may remain stagnant. For instance, a 100-square-meter apartment that cost approximately 600,000 shekels to build a few years ago, based on rates of 6,000-7,000 shekels per square meter, could now cost between 1 million and 1.2 million shekels to rebuild, reflecting rates of 10,000-12,000 shekels per square meter. This means many policyholders are effectively covered for only about 60% of the rebuilding cost.

Insurance policies specify the insurer's liability limit. If a home is completely destroyed and rebuilding costs 1 million shekels, but the policy is insured for only 600,000 shekels, the homeowner must cover the difference. Moshe Ben Porat, an insurance agent, emphasizes the importance of ensuring coverage aligns with current rebuilding costs, stating, "I prefer to see an insured person paying a little more and holding coverage that matches their property, rather than an insured person who saved a few hundred shekels over the years and discovers, on the worst day of their life, that they are short hundreds of thousands of shekels to return home."

For those in shared buildings, it's crucial to understand that building insurance covers reconstruction costs, not market value, which includes land value. In scenarios where a building is destroyed and irreparable, this distinction can be significant. Policies offer an option for "additional sum in a shared building," which homeowners should consider. Ben Porat stresses that a home insurance policy should reflect the current reality of the home, not its state from years prior, highlighting the role of an insurance agent in assessing risks and adapting coverage to changing circumstances.