Industry March 2013

Car Insurance in Japan

Knowing your options is key to finding the right coverage

Although the basic idea of car insurance in Japan will seem familiar to foreigners, car insurance here is very different from that in other countries.

To determine how much you pay for insurance, there is a system of numbered levels, between one and 20; most people start at level six. Filing a claim may cause your points to drop below six, which will be more expensive.

From level three down, coverage becomes hard to find or very expensive, while rising to a higher level will significantly lower your rates.

Choosing the right insurance depends on your circumstances, including age, driving record, type of car and how often it is driven.

However, the key to choosing the right insurance is to understand the options available, so you can get what you really need.

Low-cost insurance providers offer online applications and generic policies that may suit your needs—if you know what you are doing and feel comfortable using Japanese.

The insurer must understand properly your needs, and the extent to which each policy is able to meet them. This requires a level of English ability that has been missing from the Japanese insurance market and, thus, has put some consumers at risk.

Prospective customers should learn about the system before buying motor insurance, not after.

Basic insurance is placed on a vehicle when it is first registered, and additional levels of insurance can then be added for extra protection.

The most common mistake foreign consumers make is to have insufficient insurance coverage. Accidents here are almost never found to have been entirely the fault of one party, unless one car was stationary.

Using one’s insurance to cover small bumps and slight damage to a car ultimately raises the premium and lowers the point level within the system.

Reporting too many incidents may result in significantly higher rates, making the consumer uninsurable in some cases. Thus, paying out of one’s own pocket to maintain a good insurance record is sometimes a good idea.

Used vehicles should not necessarily be insured for the full cost of replacement, since almost no value remains once a car is older than about six years. Insuring such a vehicle for the replacement value often will mean you are paying premiums that are much too high.