Insuring an Israeli Apartment From Abroad: The Under-Insurance Trap

A pipe bursts in an empty flat in Haifa while the owner is asleep in Toronto. The repair comes to NIS 300,000. The policy limit is NIS 1,000,000, so the owner expects to be paid in full and is told, instead, that the insurer will pay half. Nothing was misrepresented and no exclusion applies. The reason is a single provision of Israeli insurance law that most foreign owners have never heard of, and by the time they meet it the money is already gone.

That provision is Section 60 of the Insurance Contract Law 5741-1981, and it turns the sum you chose years ago into a percentage that follows you into every claim. This guide explains how under-insurance works in Israel, why absentee owners drift into it almost by default, and what a non-resident can do from abroad to fix the figure before a loss rather than argue about it afterward. If you want the short version of the rule first, our Q&A on what happens when an Israeli apartment is insured below its value sets out the arithmetic in a single page.

What Section 60 Actually Does

Israeli law calls it bituach chaser, under-insurance, and Section 60 states the rule without softening it: where, at the time the contract was made, the sum insured was less than the value of the insured property, the insurer's liability is reduced in the same proportion. Read that twice, because the instinct is to assume it only bites on a total loss.

It does not. An apartment worth NIS 2,000,000 that is insured for NIS 1,000,000 is insured to 50 percent. Every claim is then paid at 50 percent. A kitchen fire causing NIS 120,000 of damage pays NIS 60,000. A burst pipe causing NIS 300,000 pays NIS 150,000. The policy limit of NIS 1,000,000 is almost irrelevant to a partial loss, because you never reach it; the proportion does the cutting long before the ceiling would.

Notice what the section keys off. It is the value at the time the contract was made, not the value on the day of the loss. In a market that has moved the way Israel's has over the past decade, that distinction is where the shortfall hides. A flat insured for its 2016 rebuild cost is measured against its 2016 value, which sounds fair until you realise the premium has been quietly renewing on that old figure every year while construction costs climbed.

In Practice: Under Section 60 of the Insurance Contract Law 5741-1981, the insurer's liability is reduced in the proportion the sum insured bears to the property's value at inception, so partial losses are cut exactly as total losses are. Section 27 of the same Law requires proceeds to be paid within 30 days of the insurer holding the documents needed to assess the claim, and Section 31 limits a claim to three years from the insured event. A residential buildings-and-contents policy on a Tel Aviv apartment runs roughly NIS 1,200 to NIS 2,500 a year, so correcting the sum insured almost always costs less than the shortfall on a single medium claim. A disputed reduction can be taken free to the public enquiries unit of the Capital Market, Insurance and Savings Authority, which usually responds within 60 to 90 days.

Why Owners Abroad End Up Under-Insured Without Noticing

Under-insurance is rarely a decision. It is the result of a policy that renews itself and an owner who is nine time zones away.

Israeli apartment policies renew automatically at the sum insured the owner chose when the flat was bought. The premium adjusts by a small index figure each year, which feels like the policy is keeping pace, but the index is a modest inflation nudge and has nothing to do with the real cost of rebuilding an apartment in 2026. A landlord who purchased in 2016 and has not looked at the buildings section since is now, very often, insured at perhaps 55 percent of current reinstatement cost. The renewal notice arrives in Hebrew, the direct debit clears, and the gap widens by another year.

Distance makes the review that would catch this feel optional. There is no annual letter from the insurer saying "your sum insured now looks low." The tenant does not raise it. The Israeli lawyer who handled the purchase has long since closed the file. So the number sits, wrong, until a loss tests it.

There is a second, subtler error that compounds the first. Owners tend to insure at the price they paid for the flat, and the price they paid was mostly for the land. In central Tel Aviv the land under an apartment can be the larger share of its market value, and land does not burn, flood or crack. Insuring the structure at the full purchase price therefore buys over-insurance on the part that cannot be lost and under-insurance on the part that can. Section 58 of the Insurance Contract Law 5741-1981 lets the insurer reduce a sum that unreasonably exceeds the property's value, so paying for a bloated figure is not a safe hedge either; you cannot claim on the excess.

Setting the Sum Insured Correctly From Overseas

The fix is not complicated, but it has to be done deliberately, in writing, and from abroad.

Ask the insurer, in writing, what basis the buildings section is set on, and confirm the answer is reinstatement cost, meaning the cost to rebuild the apartment as it stands, not its market price. Get that confirmation in an email you keep, because if a proportional reduction is later applied on a market-value basis, that email is your argument.

Have the reinstatement figure reviewed every three or four years by an Israeli appraiser (shamai mekarkein) or by the insurer's own surveyor. A short desktop appraisal is inexpensive and can be commissioned and paid for remotely; the appraiser does not need you present. Keep the resulting figure, dated, with the policy.

In Practice: Section 58 of the Insurance Contract Law 5741-1981 lets the insurer reduce a sum insured that unreasonably exceeds the property's value, so the excess you overpay on the land element cannot be claimed back as cover. A remote reinstatement appraisal from an Israeli shamai mekarkein costs roughly NIS 1,500 to NIS 3,000 and is delivered within two to three weeks, and it is filed nowhere official, so keep the dated report yourself with the policy. If the insurer and the owner cannot agree on value after a loss, the dispute route is the public enquiries unit of the Capital Market, Insurance and Savings Authority, free and typically answered within 60 to 90 days, before any claim to the Magistrates Court.

Assemble a proof file and store it where you can reach it from home. The original purchase contract (heskem hamechir), any renovation invoices, and a dated appraisal are what let a loss adjuster be argued with. When an adjuster values the property retrospectively after a loss, the owner who can produce these documents has a real conversation about the correct inception value. The owner who left the flat with a tenant and kept nothing is arguing against the adjuster's number with nothing of their own.

If the apartment is let, read your own tenancy agreement. Many Israeli leases oblige the landlord to insure the structure to full value, and a shortfall then does double damage: a reduced payout from the insurer and a possible claim from the tenant whose belongings or use were affected by a loss you failed to insure properly. Managing that exposure is part of running the property at a distance, which our guide on managing an Israeli rental property from abroad covers alongside the other absentee-landlord duties.

The Cross-Border Angle: Claims, Currency and Your Home Country

Making the claim itself is where non-residence turns from a pricing problem into a logistics problem.

The insurer will want documents, and it will want them within a framework that assumes you are in Israel. Photographs, a loss adjuster's visit, contractor quotes and often a police or fire-service report all have to be coordinated from abroad, usually through the tenant, a property manager or an Israeli lawyer holding a power of attorney. The 30-day payment clock in Section 27 does not start until the insurer holds what it needs, so a slow, remote document trail delays your own money. Build the collection of evidence into whoever manages the property on the ground, not into a phone call you make after the event.

Payment will be made in shekels to an Israeli account. If you no longer hold one, arrange where the proceeds will land before you claim, not after the insurer has approved the payment and is waiting on account details. Converting and repatriating the funds is a separate step, and a claim settled at NIS 150,000 is worth roughly USD 40,000 at current rates, enough that the transfer route and its reporting matter.

Your home country rarely taxes an insurance recovery that simply restores a damaged asset, but the interaction is worth naming rather than assuming. In the United States, an insurance payout on rental property can trigger gain-recognition rules if it exceeds the property's basis, and the like-kind and involuntary-conversion provisions may apply to how you use it. In the United Kingdom, Canada and Australia, proceeds used to reinstate the property are generally neutral, but proceeds kept rather than spent on repair can have a capital-gains consequence. None of that is Israeli law, and none of it changes Section 60, but a non-resident owner should raise the payout with their home-country accountant in the year it is received.

What Often Goes Wrong

Common Mistake: Foreign owners assume the policy limit is what they will be paid, so they set the sum insured low to keep the premium down and treat the ceiling as their safety net. Under Section 60 of the Insurance Contract Law 5741-1981, the low sum insured becomes a percentage applied to every claim, and a NIS 2,000,000 apartment insured for NIS 1,000,000 collects half of a NIS 300,000 loss, a NIS 150,000 shortfall on a single event. Because Section 31 gives only three years to sue and the value is measured at inception, the mistake cannot be repaired after the loss; the sum insured has to be right before anything happens.

Two other failures recur. The first is treating the three-year limitation in Section 31 as if it were the ordinary seven-year civil period, and losing a good claim to delay while paperwork is gathered from abroad. The second is confusing a proportional reduction with an outright refusal. A reduction is Section 60 arithmetic and is argued on valuation. A refusal usually means a vacancy clause, a disclosure issue or a policy condition is being invoked, which is a different fight with a different remedy, and one that also has to be started inside the three years.

Practical Checklist

• Ask your Israeli insurer in writing to confirm the buildings section is set on reinstatement cost, and keep the reply.
• Commission a dated appraisal of the rebuild cost every three to four years and store it with the policy.
• Keep the purchase contract, renovation invoices and appraisal in a file you can reach from home, as proof of inception value.
• Check whether your tenancy agreement obliges you to insure to full value, and confirm you meet it.
• Arrange in advance where a shekel payout will be received, and raise any recovery with your home-country accountant.
• Diarise the three-year limit in Section 31 the day any loss occurs, and act well inside it.

Speak With an Israeli Attorney

An under-insured policy is invisible until a loss exposes it, and by then Section 60 has already fixed the outcome. If your Israeli apartment has been insured on the same figure for years, or an insurer has applied a proportional reduction you think was calculated on the wrong basis, the value question is worth settling before you accept the cheque. We review Israeli policies for owners abroad before a loss, challenge reductions applied on a market rather than a reinstatement basis, and take disputes to the Capital Market Authority where that is faster than court.

Contact us for a confidential initial consultation.