How To Insure Mortgages And Other Debts in Japan Using Low Cost Decreasing Term Insurance

mortgage insurance in japan

If you have moved to Japan from a common-law country, you have probably already encountered some of the numerous legal differences between the two. But are you aware of how these legal differences affect your debts? More specifically, are you aware of how your debts in Japan can pass from you to your heirs, potentially sticking them with a costly bill instead of a healthy inheritance?

How Your Heirs May Inherit Debts In Japan

How debts can be inherited in Japan

In common-law countries like the U.S. and the U.K., the inherited property belongs to the estate temporarily. The estate is responsible for settling the decedent’s debts using the assets within the estate. After the debts are paid off, the remaining property is distributed to the heirs.

In Japan, when a person passes away, their debts are not automatically canceled. The debts can be inherited by the deceased person’s heirs, who become legally responsible for repaying them. 

There are two types of heirs: statutory heirs (spouse, children, parents, siblings) and designated heirs (named in the will). The estate’s debts, including any outstanding loans, mortgages, or other financial obligations, are deducted from the assets of the estate. 

If the estate’s assets are insufficient to cover the debts, the heirs who have accepted the inheritance are responsible for repaying the remaining amount. This means they will have to use their own personal funds to settle the remaining debts. 

For heirs to mitigate the risk of inheriting debts in Japan, there are two options available: renunciation of the inheritance and qualified acceptance of the inheritance.


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  • Renunciation of the inheritance: The heir has the right to redefine their legal relation to the deceased, effectively nullifying their connection as a beneficiary. If they do so, however, they will also be giving up any inheritable assets from the deceased, as well as the inheritable debts. This includes physical property that may be of great emotional value to the heir.
  • Qualified acceptance of the inheritance: The heir also has the opportunity to accept the inheritance under the “benefit of inventory” (meaning that the heir is only responsible for the debts and obligations that are known and included in the inventory). In this instance, the property would be liquidated, and any remaining assets inherited, but the heir would not be responsible for the remaining liabilities. This process, however, is both lengthy and costly, so it is seldom utilized in Japan.

Because of these challenges and risks, it is critical to insure your debts correctly. Otherwise, you may end up leaving your heirs with debts or with nothing.

Using Life Insurance To Insure Your Debts

One effective method for insuring your debts in Japan is using international life insurance. By choosing the correct insurance plan and coverage, you can guarantee that any debt you leave to your heirs can be paid off through the life insurance death benefit. 

How To Insure Mortgages And Other Debts in Japan Using Low Cost Decreasing Term Insurance

This method is actually so common and dependable that banks often require individuals purchasing a house to have life insurance that can cover the mortgage. For those who do not have life insurance coverage, many banks will charge a higher mortgage interest rate to enroll them in a group life insurance plan.

By obtaining international life insurance, specifically designed to cover the outstanding mortgage balance, you can ensure that your heirs will not be burdened with the mortgage debt in the event of your death. This type of life insurance policy is often referred to as mortgage protection insurance or mortgage life insurance.

Here’s how it works: Let’s say you have a mortgage and you pass away during the term of the loan. If you have international life insurance coverage for your mortgage, the insurance company will pay off the remaining mortgage balance directly to the lender. This means that your heirs will not be responsible for repaying the mortgage debt, and they can inherit the property without the burden of the outstanding loan- it also means that they won’t find themselves in a situation whereby they have to sell the family home when you die.

Matching Liabilities: How Term Life Insurance Can Save You And Your Heirs From Financial Hardship

Term life insurance provides coverage for a specific period or term. A term life insurance policy typically lasts between 5 and 30 years, but different companies may offer different lengths of coverage. These policies operate in a straightforward manner, with the insurance company guaranteeing a certain death benefit payout to the beneficiaries if the insured person passes away during the policy term. Term life insurance is generally more affordable than other types of life insurance plans due to two main factors: 

  • Simplicity of the policy: Term life insurance focuses solely on providing death benefit coverage without incorporating cash value or investment components. The premiums for term life insurance policies are based on the probability of the insured passing away during the specified term rather than building cash value over time. 
  • Lower probability of payout: If the insured person survives the term of a term life insurance policy, the policy expires without any payout or accumulated value. This is quite different from a whole-of-life insurance policy, in which the policy is permanent and the death benefit is guaranteed regardless of when the life assured dies. Because of the lower probability of payout, the life insurance company can offer lower premiums.

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Beyond affordability, one of the key advantages of term life insurance is its flexibility in aligning with specific liabilities or financial obligations. By choosing a term that matches a particular liability, individuals can ensure that they have coverage during the period when the liability is most significant or until it is expected to be resolved.

Matching Liabilities: How Term Life Insurance Can Save You And Your Heirs From Excessive Financial Burden

Taking a mortgage as an example once again, if you have a mortgage with a 30-year term, you can select a 30-year term life insurance policy. This ensures that if you pass away within that period, the death benefit can be used to pay off the mortgage, relieving your family from the financial burden of the remaining loan balance.

Similarly, if you have a dependent child who is expected to become financially independent by the age of 18, you can opt for an 18-year term life insurance policy. In the unfortunate event that your death occurs before your child reaches adulthood, the death benefit can provide financial support for education, living expenses, and other needs until they become self-sufficient.

By tailoring the term length of the policy to match specific liabilities, you can save money by avoiding the need for long-term coverage beyond the duration of those obligations. This allows you to ensure adequate coverage for your family during critical periods while optimizing your insurance costs- freeing money up for other things, like investments.

Decreasing Term Life Insurance For Decreasing Liabilities

Decreasing Term Life Insurance For Decreasing Liabilities

Although many people are aware of the basic concepts of whole-of-life or term life insurance, few people are familiar with “decreasing term” life insurance. This is a variation of term life insurance that can be used to maximize financial savings in situations where the liability or financial obligation decreases over time. This type of insurance is particularly beneficial for individuals who have liabilities that reduce as years go by, such as a mortgage or a loan that you are gradually paying off.

The key feature of decreasing term life insurance is that the death benefit amount decreases year-on-year, over the duration of the policy. As the policy progresses and the death benefit reduces, the risk to the insurance company decreases as well. This reduction in risk is reflected in lower premiums compared to a level term policy, where the death benefit remains constant throughout the term.

By opting for decreasing term insurance, you can ensure that your coverage matches your decreasing debts in Japan and save money on premiums. As the liability decreases, the insurance coverage also decreases, which reduces the overall cost of the policy. Over time, as you save more and more on your premiums, you can invest that money into accounts that will grow your wealth over time.

Working With Your Financial Adviser in Japan To Secure The Right Insurance Policy

Decreasing term life insurance can help you maximize your financial savings while protecting your loved ones in Japan from being left with your debts. However, this is not the only way to use insurance to reduce unwanted risks. 

Not only are there other forms of life insurance that may be better suited to your situation, but there are also insurances for nonfatal, unexpected life events like critical illness and disability. These insurance policies can be an effective part of a comprehensive financial plan that ensures your family’s security.

However, it is important to note that the specific terms and conditions of any type of insurance can vary between insurance providers and plans. As such, you must be very careful in calculating your needs and reviewing the policy details to ensure that the provided coverage is adequate. Working with a financial adviser can help you navigate the options and find the best coverage for your situation, guaranteeing that your loved ones are provided for no matter what happens.

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Sources and Further Reading

- “Am International Analysis of Life Insurance Demand.” Brown, Mark J and Kim, Kihong. The Journal of Risk and Insurance, Volume 60 No. 4

- Japan National Tax Agency

- KPMG Japan

- 日本生命健康保険組合