Earthquake Insurance: What You Need to Know

Earthquake Insurance: What You Need to Know

An earthquake can rock even the most solid foundations, shattering your walls and destroying your personal goods. In addition, if you do not have insurance, it may cause financial ruin.

Unfortunately, a conventional homeowners, renters, or condo insurance policy is unlikely to cover this type of damage. If you reside in an earthquake-prone area, you should consider purchasing earthquake insurance.

Do you need earthquake insurance?

Earthquake insurance is not mandatory. Although earthquakes can occur in all 50 states, some areas are more susceptible to them, making earthquake insurance a more crucial investment.

According to the United States Geological Survey, California and Alaska have the most earthquakes, with California quakes generating the greatest damage.

Although earthquakes are most commonly associated with the Western states, they are also a threat in cities such as St. Louis and Memphis, which are located near the New Madrid Fault Line in southeast Missouri. Hydraulic fracturing, or fracking, may also lead to earthquakes in areas such as Oklahoma.

Keep in mind that some types of residences may be more susceptible to earthquake damage than others. The Missouri Department of Commerce and Insurance warns that brick homes, wood frame houses with crawl spaces, and multi-story residences are more vulnerable.

Some people choose not to get insurance because they believe federal assistance will be available if the worst occurs. However, government support may not be as beneficial as you would think.

Individual grants from the Federal Emergency Management Administration are unlikely to be sufficient to fulfill your financial recovery needs. While the US Small Business Administration can provide low-interest loans of up to $200,000 to help you restore your house, you must repay that money. 

What does earthquake insurance cover?

The specifics may differ from policy to policy, but earthquake insurance often includes the following essential forms of coverage:

• Repairs to your home and its related structures, such as the garage. (Note that earthquake insurance for renters and condo owners does not include this coverage because the landlord or condo association is responsible for insuring the structure.)
• Damaged items, such as furniture and clothing. Certain fragile or precious goods, such as artwork or glassware, may not be insured.
• Additional living expenses, such as hotel and restaurant bills if you can’t live in your home during repairs.

The coverage types listed below may also be included or available as add-ons:

• Detached structures, such as a carport or tool shed.
• Debris removal.
• Emergency repairs to keep your home safe from future harm.
• Building code updates will bring your home up to the most recent safety regulations.
• Land repair involves stabilizing the property beneath your home.
• Loss assessment for condo unit owners, in case your association asks you to contribute to repair costs for shared spaces.

What’s not covered

An earthquake policy normally does not cover:

• Fires started by an earthquake. Your homeowners, renters, or condominium policy should cover this.
• Vehicle damage. If your auto insurance policy contains comprehensive coverage, it will cover earthquake damage to your vehicle up to the policy limits, less your deductible.
• Floods. Even if the flood is caused by an earthquake, you will need separate flood insurance to cover it.
• Sinkholes. You may be able to include this coverage in your homeowners policy.
• Masonry, which includes the brick, stone, or rock utilized in your home’s veneer.
• Pre-existing harm. Earthquake insurance does not cover damage that occurred prior to the policy’s issuance.

How to get earthquake insurance

If you’re looking for earthquake insurance, start with your current homes or renters insurance provider. Inquire whether it provides an add-on to your insurance or a standalone earthquake policy.

In California, the law mandates home insurance firms to offer earthquake coverage. The California Earthquake Authority, or CEA, is the state’s major earthquake insurance provider. It collaborates with over a dozen companies to provide policies for homeowners, renters, condo owners, and individuals who own mobile homes.

Residents in California, Oregon, and Washington can purchase standalone earthquake policies from GeoVera or Arrowhead, the latter of which is an agency that sells policies from a variety of firms.

If you live abroad and your current insurer does not provide coverage, you will need to shop around. Consider contacting a local independent insurance agent who works with several firms. Your state’s Department of Insurance website can also help you identify licensed earthquake insurers in your area.

How much earthquake coverage do you need?

If you are a homeowner, your insurer will normally establish the same dwelling coverage limits for earthquake and home insurance. This represents the anticipated cost of rebuilding your home, not its market worth. If you are a renter, you do not need to worry about purchasing housing insurance.

Your personal property coverage limit may be set low, at $5,000, but you can increase it to your insurer’s maximum. However, there may be limits on how much your insurer will pay for specific things, such as computers. A home inventory can help you figure out how much your items are worth.

When determining the amount of coverage for additional living expenses, consider how much it would cost to spend weeks or months living somewhere else if your home needed to be repaired.

Earthquake Insurance Deductibles

Earthquake insurance typically includes a high deductible, which is the amount deducted from your claim settlement. On your home policy, you may have a flat-rate deductible of $500 or $1,000, but earthquake deductibles are typically a percentage of the coverage limits. These percentages can range from 2.5% and 25%, depending on your insurer.

Another distinction is that, whereas home insurance typically has a single deductible that applies to both your home’s structures and your belongings, some earthquake insurance firms have separate deductibles for each component of the policy: residence and personal property. (There is usually no deductible for temporary living expenditures.)

Choosing greater deductibles will save you money on premiums, but it may leave you with a large sum to compensate yourself after an earthquake. Here’s an example.

You’ve insured the structure of your house for $300,000 and your belongings for $150,000, each with a 20% deductible. If a catastrophic earthquake flattened your house and ruined your things, your insurer would remove $60,000 — 20% of your dwelling policy limit — from the claim settlement for rebuilding.

The same goes for your belongings. The insurance would deduct $30,000, or 20%, from your $150,000 personal property limit. 

Between the two deductibles, you may end up paying for $90,000 in repairs that insurance would not cover. In the instance of small damage, you may not receive a claim settlement at all if the entire cost of repairs is less than your deductible.

That is why it is critical to carefully consider the cost of your premiums in relation to how much you might afford to pay if your home was damaged by a major earthquake. 

How much does earthquake insurance cost?

Factors that influence earthquake insurance rates include:

• The age of your home.
• The amount of stories in your home.
• Your home’s rebuilding costs.
• The deductibles and coverage limits you select.
• The soil type on your property.
• Your home’s building materials.
• Your home’s location near fault lines and seismic activity.

How can you save money on earthquake insurance?

You may be able to lower your earthquake insurance rate by increasing your deductible or modifying your property to lessen the risk of damage. According to CEA, the average cost of upgrading a property for earthquake safety ranges from $3,000 to $7,000. This may include:

• Bolting your house to the foundation.
• Attaching the water heater to the wall.
• Installing automatic gas shut-off valves.
• Bolstering the walls surrounding your crawl area.
• Reinforce your chimney and masonry walls.