Real estate investment involves the risk of fire and unforeseen accidents.
In order to reduce these risks as much as possible, many landlords have taken out various insurance policies.
For example, earthquake insurance and fire insurance are very common, but did you know that there is something called "facility liability insurance"?
In this article, we will explain what facility liability insurance is and how to purchase it.

What are the potential problems for landlords by not purchasing insurance?

As mentioned at the beginning of this article, there are many risks involved in real estate investment, so it is recommended to purchase insurance.
So, if a landlord does not have insurance, what kind of problems can arise?

There is a possibility that all damages will be borne by the landlord.

The biggest problem you can suffer from not having insurance is that the you the landlord could be responsible for the entire amount of damages.
If a fire were to break out, it would damage not only the building but also the household goods.
In that case, the amount of damage could range from millions to tens of millions of yen.
Even though we are talking about the case where an accident occurs, considering the magnitude of the damages, it is highly advisable to take out fire insurance.

You will not be able to take out Earthquake insurance

Japan is particularly famous for its earthquakes, and it is predicted that a major earthquake will occur in the near future.
In addition to fire, fire insurance covers damage caused by natural disasters such as snow, but not damage caused by earthquakes.
Therefore, it is necessary to purchase earthquake insurance separately in preparation for a major earthquake.
Insurance companies do not offer earthquake insurance as a stand-alone product, but as a supplementary service to fire insurance.
In other words, you cannot take out an earthquake insurance policy without taking out fire insurance as well.

You won't be able to get a loan

When purchasing a house with a loan, most financial institutions make the purchase of fire insurance a prerequisite for qualifying for the loan.

In the unlikely event that a fire breaks out and the house becomes uninhabitable, only the monthly loan repayments will remain.
Since financial institutions may not be able to recoup their loans, they are taking preventative measures by having people purchase fire insurance in order to qualify for the loan.

You need to compensate yourself for damage caused by other fires

If a fire breaks out in your neighborhood, there is a possibility that your home will be damaged by the fire.
In this case, under the "Fire Loss Liability Law," you cannot claim for damages unless the other party is found to be grossly negligent.
Even if you are able to claim compensation for damages, you may not be able to receive sufficient compensation if the other party is unable to pay.
No matter how careful you are, it is difficult to completely avoid the risk of accidental fire.

What Facility Liability Insurance Should Landlords Purchase?

We have introduced some of the problems that can occur if you do not have insurance, and considering all the risks, it is still essential to have insurance.
Fire and earthquake insurance have already been mentioned, but "facility liability insurance" is another type of insurance that landlords should purchase

What is "premises liability insurance"

Facility liability insurance is an insurance policy that is applied in the event that a facility such as a condominium or apartment is inadequate or defective and causes some damage to others.
For example, let's say that a fence that had become dilapidated over the years collapsed, injuring a child who was nearby.
The child's parent's may file a claim for damages against the landlord, and this facility liability insurance will be useful in that case.
We will now explain the scope of this insurance, its merits and points to consider.

What Landlords Need to Know about Facility Liability Insurance Coverage

The scope of liability for facility liability insurance includes the following

●compensation for damages
●First aid costs for victims
●Litigation costs in the event of a court case
●Cost of cooperation with insurance companies

Accidents caused intentionally by the landlord are not covered by the insurance.
In addition, the above is just an example of the scope of compensation and the contents may vary slightly depending on the insurance company.
It is important to always check the insurance contract.

Merits and Demerits of Facility Liability Insurance

We will continue on and discuss the merits and demerits of facility liability insurance.

If a claim for damages is made and the case goes all the way to trial, the associated costs will continue to mount.
It is a great advantage to be compensated for expenses that are difficult to gauge and which may result in an enormous amount.
No matter how thorough the management system is, it is almost impossible to detect and repair all the defects in a building at an early stage.
Since the insurance cost is only a few thousand yen, it is equally advantageous to be cost-effective.
Demerits

Facility liability insurance only applies to liability for damages that are legally incurred.　
Please note that it does not cover any compensation for the victims of the accident.
Also, facility liability insurance does not cover accidents caused by inadequate or defective facilities, even if the victim is the landlord himself/herself or a family member living with the landlord.
It is also important to note that the coverage is limited to cases in which a third party was harmed.

How Landlords Can get Facility Liability Insurance

So what are the different ways to purchase facility liability insurance?
There are two main ways.

①Lump it together as a special agreement in the Fire Insurance

There is a way to add facility liability insurance as a special agreement to a fire insurance policy or other insurance policy.
As with earthquake insurance, purchasing a set of insurance policies can save the hassle of signing contracts with multiple insurance companies.
In this case, the term of the facility liability insurance policy is often determined in accordance with the term of the primary fire insurance policy.
When purchasing or renewing an insurance policy, be sure to check the policy term as well.

②Purchase stand-alone facility liability insurance

There is also a way to purchase facility liability insurance on its own.
Note, however, that some insurance companies do not allow stand-alone coverage and require that it be purchased only as a combined policy with fire insurance.
In addition, additional clauses may be available to further expand the scope of coverage.
Here we introduce three such items:
Water leakage compensation

The first is a water leakage compensation clause.
This clause applies when liquid or steam leaking from old drainage pipes, sprinklers, or other equipment causes damage to third parties.
Water leakage is one of the problems that occur frequently.
It is a more secure insurance policy if it is attached to the policy.
Special clause on compensation for "sympathy" expenses

Earlier, we mentioned that the facility liability insurance only covers damages that are legally incurred, and does not apply to visitation expenses.
However, if you add this clause to your policy, you can also be covered for such visitation(to hospitals) and condolence money.

Construction Contractor's Liability Indemnification Clause

This clause applies when there is an error in the contents of an order for repair of a facility, which causes damage to others or damage to the property of others.
In this case, the landlord, who ordered the work, is also liable and is compensated for the compensation incurred.
In addition, there are various other special clauses such as "Compensation for Damage to Property under Management" and "Accident Compensation Clause".
Since the contents of these clauses vary depending on the insurance company, it may be a good idea to check the clauses of each company in advance.

In conclusion

In this article, we have provided an overview of facility liability insurance, along with its benefits and how to obtain it.
Naturally, no one should cause damage to others due to inadequacies or defects in buildings.

However, it is also true that there are many unpredictable events such as fires and accidents.
In order to minimize the risk in the event of an eventuality, you should purchase not only fire and earthquake insurance, but also facility liability insurance.