5 Things that Matter When it Comes to Earthquake Insurance
December 17, 2018
There is 99.7% chance of a 6.7+ quake in California by 2037. A 7.0 earthquake along the Hayward fault in San Francisco would do $170 billion in damages. The kicker, only $30 billion of those damages would be paid by insurance, leaving $140 billion to be paid by... homeowners.
If that has you thinking about the Big One in your area, here are 5 things that matter when purchasing earthquake insurance:
- Details matter - You may think that your homeowners insurance covers you in the event of an earthquake. WRONG. Earthquake insurance is excluded by most all homeowners policies.
If you purchase earthquake insurance, details still matter. Coverage may exclude certain aspects of your home, such as stucco and external masonry; it usually comprises damage caused within a 72-hour period (to allow for aftershocks). Policies specifically target catastrophic damage - anything less will most likely come out of your pocket.
- Deductibles matter - Earthquake policies can easily run $7,500+. Given the price, homeowners use high deductibles to manage the cost of insuring expensive properties. The CEA offers 5%, 10%, 15%, 20%, and 25% earthquake deductibles. So if you choose 15% and your home is $500,000, that is 500,000 * 15% = $75,000 deductible. Yikes! The good news, you don't have to pay the deductible up front to receive your check, the deductible is just removed from the claim settlement cost when CEA pays out a loss.
- Where you live matters - Alaska, Hawaii, Washington, Oregon and California are all part of the Ring of Fire, an expansive necklace of volcanoes and seismically active areas. But these are not the only earthquake-prone states. Illinois, Tennessee, Kentucky, Missouri, Arkansas, South Carolina and Oklahoma are also active. In fact, Oklahoma has recently eclipsed California with its induced seismicity due to wastewater disposal.
Check Your Home's Earthquake Risk
The variance in seismic risk can lead to real differences in premiums. Claims payouts, on the other hand, are the leveler. In Oklahoma, only 3 in 20 earthquake claims have been paid out since 2010. Try to get some rating on your insurance company's claim satisfaction/history before pulling the trigger.
Probably the best place to buy earthquake insurance is California, which is the only state that sponsors earthquake coverage. The Golden State has not only mandated that insurers offer earthquake coverage since the 1980s, it created the California Earthquake Authority (CEA) in 1996 following the 1994 Northridge earthquake. California earthquake policy rates were recently reduced, saving policyholders more than $16 million.
- How your house is built matters - Another reason California’s rates are lower than its coastal neighbors has to do with its proactive programs for earthquake-proofing new structures and retrofitting old ones. These upgrades can save up to 5% on premiums. Of course, ensuring your home is earthquake-proof can benefit you, whether or not you have coverage. A structural retrofit may run anywhere from $1,000 to $25,000.
- Timing matters - It may also surprise you to learn that less than 20% of homeowners purchase earthquake insurance. So that leaves the majority... spinning the roulette wheel. California, I'm looking at you: 99.7% chance of a 6.7+ quake by 2037.
If you are thinking about purchasing earthquake insurance, start shopping now, before it’s too late.
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