In most cases, buying a home requires taking out fire insurance (kasai hoken). Together with earthquake insurance (jishin hoken), here's an overview of how to choose your coverage and the points worth checking.
- When you use a mortgage, most financial institutions require you to take out fire insurance as a condition of the loan.
- Fire insurance covers not just fire but lets you combine coverage for wind damage, flooding, theft, and more.
- Earthquake insurance can't be purchased on its own — it can only be added as a rider to a fire insurance policy.
- Whether you need flood coverage is basically something to decide after checking the flood risk shown on a hazard map (hazādo mappu).
- Policy terms have an upper limit — up to five years, for example — and the cost structure differs between a long-term lump-sum contract and annual renewal.
Conclusion: Choose Your Coverage Based on the Hazard Map
Because fire insurance is contracted by combining different types of coverage, your premium changes depending on what you choose to cover more heavily. Flood coverage in particular is something to decide after checking whether the hazard map for the area around the property shows a flood risk — that's the basic approach.
How to Think About Fire Insurance Coverage
Fire insurance typically combines basic coverage — fire, lightning, explosion — with optional coverage you can choose to add, such as wind, hail, and snow damage; flooding; theft; and water leakage. For a property on a high floor of a condo, where flood risk is low, it may make sense to drop flood coverage, while for a detached house in a flood-prone area, it may make sense to add more coverage. For how to check a hazard map, see our separate article, How to Research School Districts and Living Environment — Research You Can Do Before and After Viewings.
Earthquake Insurance Only Comes as a Rider to Fire Insurance
Earthquake insurance can't be purchased on its own — it can only be contracted as a rider attached to a fire insurance policy. Damage from earthquakes, volcanic eruptions, and tsunamis is excluded from fire insurance coverage, so earthquake insurance is needed to cover those risks. Taking it out is optional, but it's worth considering if you're using a mortgage. The insured amount for earthquake insurance is set within a fixed percentage range of the fire insurance's insured amount.
How to Think About the Insured Amount and Valuation
The insured amount for fire insurance is generally set based on the building's replacement cost — the amount needed to newly build or purchase an equivalent building. If the insured amount is lower than the property's actual value, you may not receive adequate coverage in the event of a loss, so it's important to check the valuation method when you sign up. For a pre-owned condo, coverage is also divided between the exclusively-owned section and the shared areas, which is worth understanding as well.
How to Think About Policy Terms and Premiums
Fire insurance policy terms have an upper limit, and taking out a longer-term contract can lower the annual premium. On the other hand, a long-term contract is less affected by future changes to the system or premium revisions, but it requires a larger up-front payment, so it needs to be weighed against your financial plan.
The Relationship With Your Mortgage
When you use a mortgage, most financial institutions require fire insurance as a condition of loan disbursement. The level of coverage required can also differ depending on the program — Flat 35, for example — so you'll choose your insurer and plan to match the conditions of the mortgage you're using.
When to Review Your Coverage
Fire insurance is worth reviewing not only when the policy term ends, but also when a renovation or remodel changes the building's valuation, or when information about hazard risk in the area is updated. It's advisable to check your policy periodically and adjust your coverage as needed.
Frequently Asked Questions
Is taking out fire insurance mandatory?
It's not a legal requirement, but when you use a mortgage, most financial institutions require it as a condition of the loan.
Can I take out earthquake insurance on its own?
No. Earthquake insurance can only be contracted as a rider attached to fire insurance.
Should I always add flood coverage?
It's not a one-size-fits-all answer. We recommend checking the flood risk around the property on a hazard map and deciding whether you need it based on that.
Summary
Fire and earthquake insurance can look very different depending on how you combine coverage and set the policy term. Check the risks around the property on a hazard map, and choose the coverage you need while also keeping your mortgage's conditions in mind.