You Asked Us – “What Does Insurance Cover?”

Japan Investment Properties

Japan Real Estate

08 Aug, 2017 –

Earthquakes and natural disasters are known to occur in Japan. Therefore, a popular question asked by investors is, “What exactly does insurance cover?” It’s surprising just how much standard insurance covers and how affordable it is.

Coverage for individual apartment unit owners varies based on type of damage, location and age of the building. Standard insurance protects from damages due to natural disasters such as an earthquake, tsunami, volcano, as well as fire and flood damages. It is surprisingly inexpensive, only 100 to 300 JPY a month/unit, approximately USD $1 to $3 per month with the cheapest rate paid five years in advance.

While coverage is extensive, it only covers 25% to 50% of the cost of damages to buildings with the upper range more for total loss. The rest of the cost of damages would be covered by the building’s accumulated funds pool (also known as a sinking fund) collected from unit owners. Combine the two sources, assuming the building’s funds are well managed, and the total costs for damage would be covered. With this in mind, before purchasing a unit, be sure to ask about the status of the building’s accumulated funds pool as part of your due diligence as well as the repairs and maintenance history. As a guideline, the accumulated funds pool should be healthy enough to cover at least 33% of the body corporation fees (accumulated funds and management fees) assuming there have been no recent renovations. Because investors set aside monthly funds for the building’s funds pool, many prefer to keep insurance to a minimum.

It’s important to also note that coverage only extends to damages to the building, not the units themselves. Internal damages are the owner’s responsibility (other than balconies, exterior walls, etc). But, this would be the least of your worries. One factor that attracts investors to Japan properties is the culture. You will hardly ever encounter damages from tenants other than normal wear and tear, or any serious tenant payment issues, evictions, etc.

(Source – Priti Donnelly, Nippon Tradings International”, Pic – Osaka Skyline Panorama / “inefekt69“)

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