Home insurance comes in different forms and depending on which type of policy you choose your home insurance rates and coverage options will be quite different.
- HO-1: the most basic form of home insurance »
- HO-2: It is often referred to as "broad coverage" »
- HO-3: also referred to as "special" form »
- HO-4: is often called a tenant’s policy »
- HO-6: type of home insurance addressed condominium unit owners »
- HO-8: such policies are specifically designed for owners of old homes »
Home insurance is a very effective financial tool for protecting your most valuable asset. Learn how home insurance can help you protect your house and its contents against different perils.
Japan Quake’s Home Insurance Bill: $35-billion
Despite the extremely high insurance rates due to frequent natural disasters, Japan pays well over twice what America pays in the ratio of premiums to gross domestic product: 8% to 3.5%. This ratio is known as insurance penetration and is used to assess how well covered a nation is.
In fact, this preparedness is one of the reasons the disaster has not been worse and will not be as difficult to recover from as it has been for Haiti. The 2010 earthquake in Haiti was of magnitude 7.0 MMS, nowhere near the 8.9 of Japan, but caused well over 300 thousand human deaths, 300 thousand more grave injuries, and over a million cases of homelessness. The country is still nowhere near recovery.
Very few people in Haiti were insured.
Destruction in the US would be similar to Japan.
Firstly, most of the United States is nowhere near as densely populated as the area of Japan that was hit by the earthquake and tsunami. Secondly, the United States is far better covered than is Haiti. However, lower income people in America would likely be very bad off - millions and millions are without home insurance, and a large percentage of the country is without health insurance. Japan has a national health care system that protects its people; the United States has no such provision, and the debt for the uninsured cripple the economy.
As of yet, the bill for the insured property damaged in Japan is somewhere in the region of $35 billion, according to WSJ.com. The number would be higher, but while homeowners are mostly covered, commercial property insurance is often too expensive in big cities like Tokyo, so many businesses will have to close without government support.
There is potential for even more of a hit to insurers finances. Yes, there are probably thousands and thousands in claims yet to be made. The larger issue, however, is the potential nuclear damage. And this will not only hit insurers, but the Japanese government directly could be in for a financial crisis. (Actually, they've had a financial crisis for several years.)
Natural disaster insurance for energy facilities in Japan is purchased directly from the state. This means that the many trillions of dollars in damage possible to and from the Fukushima nuclear plant will have to be paid for by the Japanese government - or foreign loans and several years of taxes. The domestic companies that cover Tokyo Electric Power Co. (the owners of the plant) will not have to pay a dime of the $1.5 billion in radioactive leak liability coverage.
However, should the explosions and any radiation contamination damage surrounding property, it may fall to property owners. For example, the agriculture that has been hit is required to pay for its own damages (though government subsidies may help). Impacted homeowners better have good home insurance.
Wakeup Call to USA
Homeowners and renters in the US need to be prepared as well. New risk assessment may mean increase in home insurance premiums. In addition, home insurance rates may rise to compensate for industry losses in Japan.