Now, we are required to have insurance for our home if we secure a loan from a bank, we are required to have auto insurance if we finance a car, but there are several forms of insurance that are not mandatory. Earthquake insurance is one such type of insurance. If you live in South Dakota, it may not ever cross your mind, but when you own a home in California, it is certainly a consideration. Whether or not earthquake insurance is warranted shouldn’t be the issue because if you have lived in So Cal for any prolonged period, you have certainly felt a tremor. Most are little shakers that do not damage but the threat may be greater than you think. In the wake of recent updates in government seismic risk maps, it really isn’t a matter of if we will have a big earthquake, but when.
Standard homeowners insurance generally excludes earthquake damage coverage. Without earthquake coverage, if your home is damaged by a quake or other earth movement, you’re probably not covered unless you’ve purchased a separate earthquake policy or rider. What is the risk? While all states have some level of earthquake risk, the U.S. Geological Survey has identified 42 states that have a reasonable chance of experiencing damaging ground shaking from an earthquake over a 50-year period and 16 states that have a relatively high likelihood plus a history of earthquakes of magnitude 6 or greater, including California, Hawaii, Missouri, Oregon, South Carolina, Tennessee, and Washington. So getting earthquake insurance may be something we look into more seriously if we don’t have it already.
Now, is the cost worth the risk? The higher your risk, the more expensive the insurance. Earthquake insurance on a wood frame home built in Napa after 1990, who experienced a large earthquake in August of 2014, with an insured dwelling value of $400,000 would cost $1,191 in premiums per year. The same home built of brick or other material would cost $3,232 per year, according to the California Earthquake Authority, a publicly managed and privately funded provider of earthquake insurance. In both cases, the deductible is a steep 10% or $40,000, which is the amount eligible claimants must pay out-of-pocket. So earthquake insurance is very costly. If you have insurance, which most people do you can usually buy earthquake insurance from your current carrier as an add-on to your existing policy. Get a quote, but also shop at competing insurers to find the best price.
What are the alternatives to earthquake insurance? You can take steps to strengthen your house against earthquake by, for example, bolting the frame of the building to its foundation. The State of California offers mitigation assistance. By reducing the likelihood of structural damage, mitigation can reduce your premium, or if you feel confident, give you peace of mind should a large earthquake hit. Reading what is covered in your policy is important to as most policies cover damage to the contents of the home, but typically not if the dwelling itself isn’t damaged or if you haven’t yet met your deductible. To protect yourself, never assume you don’t have sufficient damage to exceed your deductible; serious structural damage can be hidden behind walls, in the attic, and in crawl spaces and the foundation.
It is my opinion that doing what is necessary to make your home a little safer is a good idea, but nothing would stop the damage from a big enough earthquake. If you have it in your budget, definitely look into getting earthquake insurance, if not, just look around your house an think about what would fall if one hit. Good luck and I hope this helps you make the right decision. Hopefully it isn’t needed, but if the big one hits, at least you know the risks and rewards.