Two classes, and why the difference is not just price

Japanese insurers divide buildings by use. Houses lived in are one class. Shops, offices, warehouses and, as a general rule, houses with nobody living in them are another.

The row that matters is the earthquake row. In a country where earthquakes are the defining risk to buildings, being outside the class that can buy earthquake cover is not a pricing inconvenience. It changes what the policy is for.

The insurers' reasoning is plain enough. An empty building is a more attractive target for arson, leaks and equipment failures run unchecked, and above all, nobody is there when something starts. The same fire in an empty house does more damage than in an occupied one, because the first hour passes without anyone noticing.

Which one is your property?

"Vacant" covers several situations that are treated differently. In practice there are four.

Most overseas owners buying deliberately fall into the second row. Staying several times a year, with the house furnished and ready to use, can keep the property in the residential class along with the earthquake cover that comes with it.

Most overseas owners who inherited fall into the third.

The important thing about these rows is that a property moves between them quietly. A house used as a second home for three years, then not visited for two, then cleared of furniture, then disconnected from the electricity supply, has changed class somewhere along that sequence. Nothing announced it. The policy documents still say what they always said.

Earthquake cover is smaller than people expect

Where you can buy it, it is worth understanding what it is.

Earthquake cover in Japan cannot be bought on its own. It attaches to a fire policy, and the amount is set as a proportion of the fire sum insured, within a band of 30 to 50 per cent. There are absolute ceilings as well: up to 50 million yen on the building and up to 10 million yen on contents.

So on a house insured for 20 million yen against fire, earthquake cover runs to at most 10 million yen. It is not a rebuild. It was designed to help people restart, not to restore the building. That is worth knowing before you make decisions on the strength of having it, and worth knowing equally when you are deciding whether the class that excludes it matters to you.

The duty to tell them

Two obligations sit with the policyholder. You must state the facts accurately when the contract is made, and you must notify the insurer when the circumstances change during the policy.

A house that was occupied and is now empty is exactly such a change.

If it goes unreported and a fire follows, the insurer investigates. Where the investigation establishes that nobody was living there, the contract may be cancelled for breach of those duties and the claim may go unpaid. How long you had been paying is not a factor.

The failure mode here is quiet and it is common. Nothing happens for years. The premiums leave the account, the renewal documents arrive somewhere, and the arrangement looks entirely normal. It is only at the claim that anyone discovers the cover was not there.

What regular management can and cannot do

We visit properties monthly, so it is worth being precise about what that can and cannot achieve.

A record of visits does not convert an unoccupied house into a residential-class building. Classification follows the actual use of the building. A management contract does not create occupancy and should not be sold as though it does.

What it does do falls into three parts.

It keeps you insurable. A property that has deteriorated far enough can be refused cover in any class, and the destination of that road is no insurance at all. Being able to show that the building is under an active maintenance arrangement, with reports, helps at underwriting. This is not about lowering the premium. It is about remaining eligible to pay one.

It supports a genuine second-home position. Where the property really is used as a second home, keeping utilities connected, furniture in place and the house habitable is what sustains that. Visit records document it. This applies to properties genuinely in use, and it is not a way of presenting an empty house as something else.

It gives you evidence at the claim. When a fire or an escape of water occurs, how the owner had been managing the property can become contested. A documented history of checking locks, running water and inspecting the exterior is objective material. It matters in claim assessment, and it matters again if a third party brings a liability claim.

Liability riders also depend on the class

Liability for a wall, roof or tree that injures somebody is a separate exposure from damage to your own building, and fire policies can carry riders for it. Which rider is available depends on the class.

The third row reflects something particular to Japan. Under separate legislation, a person whose fire spreads to a neighbour is generally not liable for the neighbour's loss unless they were grossly negligent. Neighbour damage cover exists because not being legally liable and not having destroyed a relationship are different things.

That gross negligence threshold deserves a second look if your house stands empty. Whether neglect over a period amounts to gross negligence is decided case by case, and it is not a question anyone wants to be arguing after the event.

The sum insured has to clear the site, not just rebuild

After a fire, what remains has to be demolished, removed and disposed of. Those costs are not in proportion to the age of the building.

Older properties are frequently insured for a low figure, on the reasoning that the building is not worth much. The reasoning holds for the building and fails for the debris. Demolition and disposal cost what they cost.

Where the settlement will not cover clearing the site, the site does not get cleared. A burnt-out structure then stands there, which is the condition that attracts designation as a poorly maintained property and the tax consequences attached to it. The question to ask about the sum insured is not only what it would cost to rebuild, but what it would cost to get back to bare land. On cheap property, as set out in what a cheap Japanese house actually costs, that second figure can be the larger one.

Seven things to check

1. Is the policy still in force, and where are the renewal notices being sent?
2. Which class is the building insured under?
3. Does that class match how the property is actually used today?
4. If it became empty, has the insurer been told?
5. Is wind damage covered, and what is the excess?
6. Is a liability rider attached, and is it the right one for this class?
7. Would the sum insured cover demolition and disposal as well as rebuilding?

Start with the first one. Renewal notices go to a Japanese address, on paper, and a policy that quietly lapsed because the notice reached nobody is a more common finding than any of the others on this list.