Of course, the owner of a piece of real estate wants to protect his property, and the possessions inside. However, there is more to housing insurance than just what he or she owns. One must also consider other parties, as well. For instance, what about liability the owner might have towards others if his/her property accidentally damages another’s property? What if someone gets hurt? Additionally, what kind of insurance is available for tenants to insure their possessions? And how should an owner interact with the insurance company?
Facility Liability Insurance, Also Known as Facility Compensation Insurance
Firstly, Facility Liability Insurance, or 施設賠償責任保険 (shisetsu baishō sekinin hoken), covers damage or injury caused by the owner’s property. However, not all Fire Insurance policies include it, so please check carefully.
Imagine that Robert is the landlord of a large building in Machida-shi, Tokyo. He has Fire Insurance for that building, including Facility Liability Insurance. His passive income has made him financially independent.
Therefore, we would expect Robert to be happy, but right now, he isn’t. Because this year hasn’t been a good year for Robert. First, a fire that started in his building caused damage in an adjacent building owned by someone else. Then, a month later, a tile fell off a high part of the building and hit someone in the head. To make matters worse, that person is now suing for medical expenses. Then Robert had to go on a business trip to China. However, in his rush not to miss the plane, he forgot to turn off the faucet in his bathroom. After his plane landed in China, he received a call that water had seeped into the room below. It caused significant damage. Poor Robert, this really isn’t his year.
Robert Learns the Benefits of His Facility Liability Insurance
Robert goes to the The Hub for a drink. His friend, James, is there, and they commiserate over a few cold ones. Then their friend John walks in and sits down next to them.
John knows all about housing insurance. After an hour, Robert is feeling much, much better!
You see, first of all, Robert was lucky. His policy included fire liability. Not all Facility Liability Insurance does. The reason for this is the “Accidental Fire Law” (失火法, shikkahō). According to the Accidental Fire Law, the owner of real estate may not not be liable for damage caused by a fire his property started, unless it was intentional or gross negligence. Therefore, he might not even be liable, and even if he is, the fire liability part of his Facility Liability Insurance policy will cover it.
The tile that fell on someone’s head? Facility Liability Insurance covers that, too.
The water leakage, does the Facility Liability Insurance cover that? Robert was lucky. In his case, it does. Facility Liability Insurance can include a “Water Leakage Special Guarantee Contract” as an add-on. Fortunately, Robert had signed up for it.
It looks like Robert is more or less in the clear. Good thing he added fire liability and “Water Leakage Special Guarantee Contract” to his Facility Liability Insurance policy. What if he hadn’t?
It’s almost the end of the year. Robert rejoices that his troubles seem to be at an end. His property is Machida, Tokyo, not in Tōhoku or Hokkaidō. Those areas are more accident-prone due to them being cold and snowy, and having Facility Liability Insurance there is even more important.
Fire Insurance for Residents
Not only do owners take out Fire Insurance, residents (i.e. renters, tenants) do, as well. This insurance does not cover the building, but does cover the possessions of the resident. It may also have a liability component. Check with the management company to confirm the coverage.
Tenant/Leaseholder Liability Insurance
Tenant/Leaseholder Liability Insurance (借家人賠償責任保険, shakuyanin baishō sekinin hoken) covers misadventures throughout the building. For example, imagine that he/she leaves a pot on the stove and walks away, forgetting about it. It catches fire. It causes significant damage, not only to his/her unit, but also to the next one, as well. Fortunately, if the tenant starts a fire, Tenant/Leaseholder Liability Insurance covers his/her liability.
As a landlord, it is very important to make sure your renter signs up for this. A fire in a studio apartment (ワンルーム, wanruumu, one-room) can cause over ¥10,000,000 in damage. If the tenant is unable to pay, the landlord has to pay.
Personal Liability Insurance
This one makes us scratch our heads. Although part of Housing Insurance/Fire Insurance, in many cases, it has nothing to do with either houses or fires. Yet it’s still an important component of Housing Insurance/Fire Insurance for Residents.
It covers a tenant if he or she causes water damage. For example if his/her toilet overflows and damages the unit downstairs.
The interesting and confusing part is that it also covers things far, far away from the home. If the renter is shopping at a department store and breaks something, it’ll cover that, too.
For All Kinds of Housing Insurance: Payouts
Hopefully, you’ll never need to file a claim. However, if you do, you’ll need to take a photo of the scene and fill out an estimate/invoice. An auditor from the insurance company may visit the site.
Hopefully, the insurance company will make a payout. It’ll take depreciation into account. This will be according to the market value, not necessarily the cost of the repair. To make sure that the insurance will cover enough, it’s best to have a “Contract at the Replacement Price”. This covers the cost of purchasing an equivalent building. It is not part of all policies, so check carefully.
Housing Insurance Renewal
Policies have a finite period of insurance. Make sure not to let the insurance lapse. If using a management company, be sure to check with them that they renew the insurance.
Don’t Panic, Housing Insurance Is Here!
Housing insurance can seem like a daunting topic. However, once we understand that “Fire Insurance” is basically general housing insurance, it becomes simpler. There is “Fire Insurance” for the owner, and “Fire Insurance” for the tenant, and they cover different things. Some of these things are not fires, and some of them, such as snow damage, are actually rather cold. However, unfortunately for the owner, fire insurance excludes fires caused by earthquakes or volcanoes, unless one adds Earthquake Insurance. Furthermore, it’s important to protect not only the possessions and buildings, but the people themselves through liability insurance. Another thing that adds complication is that different types of liability insurance apply to owners and residents. In the case of residents, the policy may also insure accidents that have nothing to do with the property.
First of all, document accidents well, know what to expect in the way of payouts, and make sure to renew the policy. Then you can enjoy your passive income and financial independence without fear.
As An Owner, What Do I Actually Need To Buy?
Most recommended types of insurance for owners:
- Fire Insurance (火災保険, kasai hoken) for the owner
- Furthermore, it might also be a good idea to get Earthquake Insurance. This particularly applies to the Pacific Coast of Japan.
As A Renter, What Do I Actually Need To Buy?
Most recommended type of insurance for renters:
- Fire insurance (likely required by your landlord or landlady)