Facility liability insurance is insurance that provides coverage when a third party suffers damage due to a defect in a building or inadequate property management. For rental property owners, it is an important policy for preparing against unexpected accident risks. In this article, we explain how facility liability insurance works, what it covers, and how it differs from fire insurance.
What insurance should rental property owners consider?
Rental property management involves a range of risks, so insurance coverage is essential. Let’s review the main types of insurance.
Fire insurance
This insurance broadly covers damage to the building, not only from fire but also from flood, windstorm, snow damage, lightning, water leakage, and theft. In general, the owner insures the building itself, while the tenant separately purchases insurance for household belongings.
Earthquake insurance
This insurance covers damage caused by earthquakes, tsunamis, and fires resulting from earthquakes. It is important to note that it can only be purchased together with fire insurance. In Japan, a country prone to earthquakes, it can be regarded as essential coverage.
Solitary death insurance
This insurance covers restoration costs and vacancy losses associated with a tenant’s solitary death. As society continues to age, the importance of this coverage is increasing.
What is facility liability insurance?
Facility liability insurance covers the compensation that an owner must pay when a third party, such as a tenant or passerby, suffers bodily injury or property damage due to a structural defect in the building or inadequate management.
Cases covered by the policy
Examples include injuries to passersby caused by falling exterior wall tiles, a tenant falling because of a broken handrail in a common area, or water damage to a lower floor caused by a burst water or drainage pipe. Accidents arising from building management and maintenance are covered broadly.
Breakdown of covered costs
In addition to damages such as medical expenses and repair costs, the insurance also covers dispute-related costs such as attorney fees and litigation expenses. Some policies also include riders that support settlement negotiations.
How is facility liability insurance different from fire insurance?
Both relate to the building, but they cover different types of risk. Ideally, owners should carry both.
Fire insurance covers damage to “your own building”
Fire insurance covers damage to the building itself caused by natural disasters or accidents. In other words, it covers “your own property (the building).”
Facility liability insurance covers “damage caused to third parties”
Facility liability insurance covers “damage caused to others” due to a defect in the building or inadequate management. By carrying both policies, owners can cover risk more comprehensively.
What is the typical premium for facility liability insurance?
Premiums vary depending on the size and use of the building, as well as the coverage limit.
Premium guideline
For a typical rental property, the annual premium is generally around 10,000 to 30,000 yen. With a coverage limit of 100 million yen, a rough benchmark is about 15,000 yen per year. If it is added as a rider to a fire insurance policy, it may be less expensive in some cases.
What should you watch for when purchasing facility liability insurance?
Understand the key points to check before enrolling so you can choose the right policy.
Setting the coverage limit
In the event of a serious accident, compensation can reach tens of millions of yen. For that reason, we recommend a coverage limit of at least 100 million yen.
Checking exclusions
Accidents caused intentionally or through gross negligence, as well as damage caused by natural disasters, may be excluded from coverage. Please review the policy terms carefully.
Checking for overlap with existing insurance
Because some fire insurance policies already include facility liability coverage as a rider, review your existing insurance contract before deciding whether to purchase additional coverage.
Frequently Asked Questions (FAQ)
Q. Is facility liability insurance something you should always have?
There is no legal requirement to carry it, but it is strongly recommended for rental property owners. That is because a single accident can create the risk of bearing liability for damages ranging from several million to tens of millions of yen.
Q. Does it also cover accidents caused by tenants?
Facility liability insurance applies to accidents based on the owner’s management responsibility. Accidents caused by a tenant’s negligence are covered by the tenant’s own personal liability insurance.
Q. Where can facility liability insurance be purchased?
It can be purchased from non-life insurance companies. It is commonly added as a rider to fire insurance, but a standalone policy is also possible.
