One morning, James is sitting on a floor chair in his tatami room, sipping green tea and reading Yomiuri Shimbun while intermittently gazing out the window at Mt. Fuji, when suddenly, the whole building starts to sway: gura gura, gura gura. Then the shaking gets stronger: GURA GURA. James runs outside. This is a big one! Living near the coast, he decides to seek higher ground. He climbs to the top of a hill overlooking his home. As he stands there, panting, Mt. Fuji opens up, spewing fire and ash into the heavens. It hurls a rock, the size of a bus, into the air! It lands on his garage. He screams. He shakes his fist at the heavens. “Why?! WHY ME?!” Then he calms down. “At least I still have a house,” he consoles himself.
Then, at that moment, a tsunami sweeps in, just like a Hokusai woodblock print. It washes away his home, leaving nothing behind!
James himself is unharmed. He knew that Japan has more than its fair share of natural disasters. He used to tell himself “This is the kind of thing that happens to other people. It won’t happen to me.” Well, it just did. Then he remembers that he took housing insurance out on his home. He files a claim and waits.
Then, one day, he gets a letter. It says: “Claim denied. Payout: ¥0.” James faints.
James becomes disillusioned. He rants to his neighbour, John about the injustice. John says “My home was destroyed too, but I got a 50% payout from my insurance company.”
How could this happen? How is possible that, despite having housing insurance, James lost everything and received no reimbursement? Why did John get a 50% payout?
Enter the complex, mysterious world of Japanese housing insurance (but good news—it’s simpler than you might think).
Japanese housing insurance can seem overwhelming at first. The root of all the confusion is the term “Fire Insurance” (火災保険, kasai hoken). There are three main reasons why this term causes so much mental anguish to prospective owners/real estate investors:
Not Just Fire
The first reason “Fire Insurance” is so confusing is that it does far more than just cover fires. Yet they still call it “Fire Insurance,” even though “General Housing Insurance” might be a more suitable term. Perhaps it’s a throwback from the old days, when most buildings were wooden, packed tightly together, burning firewood to keep warm? Maybe back then, fire was by far the greatest risk. Anyhow, in the 21st century, depending on the policy, its scope has expanded. Now, it might cover damage or destruction from:
- A car colliding with a wall
- A broken window
- …and more!
Ancillary services might even include assistance if the owner locks himself out, or if the air conditioner leaks. Yet they still call it “Fire Insurance.”
2. Sometimes Fire Insurance Won’t Cover a Fire
Sometimes, fire insurance doesn’t even cover fires! If the fire is the result of an earthquake, the insurance company won’t cover it…
…unless the policy holder purchased “Earthquake Insurance.” Damage caused by seismic events such as an earthquake, volcano, or tsunami all fall under “Earthquake Insurance.” This is why, in the example, James received no payout, but John received a large payout. James’ housing insurance was “Fire Insurance” only. John, on the other hand, had not only “Fire Insurance,” but also “Earthquake Insurance” added to his Fire Insurance policy.
3. There are two types of Fire Insurance.
There is Fire Insurance for the property Owner, and Fire Insurance for the property tenant (i.e. renter). Across the Internet there are many articles that discuss only one type of Fire Insurance. Article X discusses Fire Insurance for the Resident as if it were the only type in existence. Article Y discusses Fire Insurance for the Owner as if there were no other kind. Yet both articles call them “Fire Insurance.” We cannot understate the amount of confusion this has caused. Both owner and resident have their own Fire Insurance policies, and each one covers different things.
Fire Insurance for Owners
There are three levels of Fire Insurance for Owners. Each one adds more coverage onto the previous level.
Housing Fire Insurance
The most basic type of fire insurance for owners is “Housing Fire Insurance” (住宅火災保険, jūtaku kasai hoken). It covers damage/destruction to one’s building or possessions. As previously mentioned, causes can include fire, lightning, wind, rupture, explosion, snow, or hail. Depending on the policy, it may even include a car colliding with a wall or a broken window. If there is a tenant, it could cover an accident when a tenant is moving out. When lifting a heavy mattress or piece of furniture, things happen, after all. Ancillary services might also include support if the owner loses the key, the air conditioner leaks, etc.
Housing Comprehensive Insurance
In Japanese, the phrase is 住宅総合保険 (jūtaku sōgō hoken). This covers: theft, water damage, water disasters, falling objects, collisions from outside the building, and noise.
Please note that for water disasters, there are usually some conditions. The insurance company will usually not pay unless the water reached 45 cm. It will only reimburse 30% of the replacement cost. Water disasters caused by earthquakes are exempt, unless the policyholder has Earthquake Insurance added onto his/her fire insurance policy. This is why James received nothing from his insurance company after the tsunami, while John received 50%.
New Fire Insurance
The phrase for this is 新型火災保険 (shingata kasai hoken). Traditionally, Japanese insurance has not been very customisable. However, now, with New Fire Insurance, you can select what you want to insure against freely. This includes things that are extremely unlikely to occur. Did you stay up late last night watching the latest Godzilla movie and get spooked? Then this might be the insurance for you.
Earthquake Insurance, or 地震保険 (jishin hoken), insures against earthquakes, volcanic eruptions, and tsunamis. It also insures against fires, floods, etc. caused by these seismic events (which regular Fire Insurance doesn’t cover). It’s an add-on for Fire Insurance. Generally you can’t purchase it separately.
Usually, the insurance period is for five years. If a major earthquake were to happen, it would affect many homes. The insurance company and the government of Japan have established a joint earthquake fund to prepare for this eventuality. However, they would find themselves strained. Therefore, firstly, premiums are approximately twice as expensive as the basic Fire Insurance policy. Second, coverage is not the full value of the building and/or possessions, but 30~50%. This is why, in the example, John received 50% from his insurance company when a tsunami swept away his house.
There’s a cap on payouts. ¥50 million is the limit for a single property; for a large building, the limit is:
¥50,000,000 × the number of units
In the event of damage or destruction from an earthquake, volcano, or tsunami, there are three types of “Loss.” In “Total Loss,” the insurance company pays out 100%. In “Half Loss,” the insurance company pays out 50%, in “Partial Loss”, 5%. Keep in mind that they multiply these numbers times the coverage for the earthquake (remember from before, 30~50%). Therefore, if an earthquake destroys your home and your policy says “50%,” and your home is worth ¥10,000,000: