Paul Sanchez
Earthquakes are a sudden and rapid shaking of the earth caused by the breaking and shifting of rock beneath the earth's surface. This shaking can trigger landslides, avalanches, flash floods, fires, and tsunamis. Millions of people across 42 states in the US are at risk of damage from earthquakes, yet few purchase earthquake insurance. Standard homeowners' insurance does not cover damage resulting from earthquakes, and in the 1990s, many insurance companies stopped offering earthquake coverage due to the potential financial risks. However, earthquake insurance is available from private insurance companies, and it can provide financial protection for homeowners, renters, and business owners. This insurance typically covers damage to the property, personal belongings, and additional living expenses incurred during repairs. The cost of earthquake insurance varies depending on location, the age of the property, and the likelihood of earthquakes in the region. While earthquake insurance is not mandatory, it can provide financial security in the event of a disaster.
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What You'll Learn
Earthquake insurance options
Earthquake insurance is available from private insurance companies, but it is not a standard inclusion in homeowners' insurance policies. Earthquake insurance is an additional premium that can be added to a standard policy, or it can be purchased as a separate policy.
Traditional Earthquake Insurance
Traditional earthquake insurance covers damage caused by an earthquake by insuring "pure loss". This means that the insurance company will assess the value of the items lost and reimburse the policyholder for that specific amount. This amount will differ depending on the individual. Traditional earthquake insurance does not cover damage to vehicles or land, such as sinkholes or floods.
Parametric Insurance
Parametric insurance is a newer approach that insures policyholders against specific events by using parameters (set criteria that apply to everyone) to determine whether a payout is triggered. For example, a certain level of ground-shake intensity must be met or exceeded for a payout to be triggered.
In the US, earthquake insurance is available from private insurance companies. The California Earthquake Authority (CEA) is the largest provider of residential earthquake insurance in the country, with 1,113,964 policies in force at the end of February 2020. The CEA provides two-thirds of the residential earthquake insurance policies sold in California. The CEA offers standard and choice policies for homeowners, mobile home owners, condo unit owners, and renters. The standard policy covers earthquake damage to the home and attached structures, with personal property covered up to $200,000 and additional living expenses covered up to $100,000. The choice policy includes the standard coverage, plus additional coverage for breakable possessions.
Cost of Earthquake Insurance
The cost of earthquake insurance will depend on factors such as the location and age of the property, as well as the deductible. Premiums for earthquake insurance typically range from $800 to $1,350, but they can go much higher depending on the property. Deductibles usually range from 2% to 20% of the replacement value of the property.
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Exclusions to insurance policies
Earthquake insurance is available from most insurance companies in most states. However, it is not a realistic option for everyone due to the high cost of premiums. Earthquake insurance is not included in standard homeowners' insurance policies, which typically exclude damage caused by "earth movement".
There are several exclusions to earthquake insurance policies, including:
- Damage that is already covered by a homeowners' policy, such as fire damage.
- Damage to land, including sinkholes from erosion or other hidden openings.
- Damage to vehicles.
- Water damage from outside the home, such as sewer or drain backup, floods, or tsunamis.
It is important to note that earthquake insurance does not cover all losses resulting from an earthquake. It is intended to help individuals regain housing, but it will not replace all lost possessions. Earthquake insurance also does not cover additional perils often associated with earthquakes, such as fires or floods.
Additionally, earthquake insurance policies have different deductibles than standard homeowners' insurance. Instead of a flat dollar amount, earthquake insurance deductibles are typically calculated as a percentage of the coverage cost of the home.
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Financial preparedness
Earthquakes are insurable, but standard homeowners' insurance policies do not typically cover damage resulting from earthquakes. This includes damage from land movement, landslides, sinkholes, and floods, which are often associated with earthquakes. In the 1990s, many insurance companies stopped offering earthquake coverage due to the potential financial risks.
However, if you live in an area prone to earthquakes or near a fault line, it is crucial to consider purchasing earthquake insurance to protect your property and finances. Here are some steps to help you prepare financially for earthquakes:
Assess Your Risk
Evaluate the likelihood of earthquakes occurring in your region. Consider factors such as proximity to fault lines or seismic activity in your area. Understanding the risk level will help you make informed decisions about insurance and preparedness measures.
Understand Your Insurance Options
Research the different types of earthquake insurance available. Standard homeowners' insurance typically excludes earthquake damage, but separate earthquake policies or endorsements can be added for an additional premium. Contact your insurance provider to inquire about their specific offerings and exclusions.
Evaluate Your Coverage Needs
Determine the level of coverage you require by considering factors such as the cost of rebuilding your home, the value of your belongings, and potential additional living expenses if you need to relocate during repairs. Ensure that your policy covers both dwelling coverage and personal property protection.
Shop Around for the Right Policy
Compare policies from different insurance providers to find the most suitable coverage at a competitive price. Consider factors such as deductibles, coverage limits, and exclusions. Online tools and calculators can assist in estimating the cost of different policies.
Prepare an Emergency Fund
In addition to insurance, consider setting aside an emergency fund specifically for earthquake-related expenses. This fund can help cover immediate needs, such as temporary accommodation, food, and essential repairs, while insurance claims are being processed.
Understand Exclusions and Endorsements
Be aware that earthquake insurance policies typically have exclusions, such as damage to vehicles, landscaping, or separate structures on your property. Read the fine print of your policy carefully, and consider purchasing additional coverage for exclusions if necessary. Endorsements or riders can be added to your policy to extend coverage for specific risks.
By following these steps, you can enhance your financial preparedness for earthquakes and mitigate the potential financial impact on your life and property. Remember that proactive planning can significantly ease the burden of recovering from a disaster.
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Cost of insurance
Earthquake insurance is not included in standard homeowners insurance policies. If you live in an area at risk of earthquakes, you may need to purchase a separate earthquake insurance policy, in addition to your standard homeowners insurance.
The cost of earthquake insurance varies depending on several factors, including the location and age of your home, as well as the coverage limits and deductibles you choose. On average, earthquake insurance premiums in the US range from $800 to $1,350 per year but can go much higher, especially if your home is in a high-risk area, built on sandy soil, or is older. For example, insuring a single-family house in California can cost between $1,248 to $2,744 per year for $500,000 of coverage.
To determine how much earthquake insurance you need, consider the average cost per square foot to rebuild in your area and the value of your belongings. You can use an insurance agent or appraiser to help you assess these values and determine the appropriate amount of coverage. It is important to ensure you have enough coverage to rebuild your home and replace your personal belongings if they are damaged in an earthquake.
In addition to the cost of insurance, it is essential to understand what is covered by your policy. Traditional earthquake insurance typically covers the pure loss of items due to direct damage from the earthquake. This means that the insurance company will assess the value of the items lost and reimburse you for that specific amount. Some policies may also cover additional living expenses, such as rental homes or hotels, if you cannot live in your home during repairs. It is important to carefully review the terms and conditions of your policy to understand what is and is not covered.
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How to get insured
Earthquake insurance is not typically included in standard homeowners insurance policies. However, if you live in an area prone to earthquakes or near a fault line, it is advisable to get earthquake insurance to protect your home and belongings. Here is a step-by-step guide on how to get insured:
Step 1: Assess Your Risk
Evaluate the likelihood of earthquakes occurring in your region. If you live in an area with a high risk of seismic activity or along the West Coast, earthquake insurance is highly recommended.
Step 2: Contact Your Home Insurance Provider
Get in touch with your current homeowners insurance company to inquire about their earthquake coverage options. Some insurers may offer earthquake endorsements or riders that can be added to your existing policy for an additional premium.
Step 3: Explore Standalone Earthquake Policies
If your current insurer does not provide earthquake coverage, consider purchasing a standalone earthquake insurance policy. You can find licensed earthquake insurance providers through your state's department of insurance.
Step 4: Compare Policy Options
Research and compare different earthquake insurance policies available in your area. Consider factors such as coverage types and limits, deductibles, and premiums. Evaluate what aspects of your home and belongings you want to insure, including structures, personal property, and additional living expenses if you need to relocate during repairs.
Step 5: Calculate Coverage Amount
Determine the amount of coverage you need. Consider factors such as the cost of rebuilding your home per square foot, the value of your belongings, and any additional expenses you may incur due to relocation or emergency repairs. An insurance agent or appraiser can assist you in calculating the appropriate coverage amount.
Step 6: Choose a Reputable Insurer
Select a reputable and reliable earthquake insurance provider. Organizations like the California Earthquake Authority (CEA) are specialized providers offering various coverage options for homes, condos, mobile homes, and renters. They also offer premium discounts for older homes that have been retrofitted to withstand earthquakes better.
Step 7: Understand Policy Details
Before purchasing a policy, ensure you thoroughly understand the terms, conditions, and exclusions. Earthquake insurance typically covers direct damage from the earthquake but may not include additional perils associated with earthquakes, such as floods or fires. Clarify any doubts with the insurance provider and carefully review the policy documents.
Step 8: Maintain Financial Resilience
In addition to insurance, maintain financial preparedness for potential earthquakes. This may include savings, loans, or accessing disaster assistance programs. Having a comprehensive financial plan will help you recover more effectively if an earthquake occurs.
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Frequently asked questions
Yes, earthquakes are insurable. However, standard homeowners insurance does not typically include earthquake coverage. You can buy earthquake insurance as a separate policy or endorsement.
Earthquake insurance covers damage caused by an earthquake to your home and any attached structures. It also covers damage to personal property, such as furniture and appliances, and may cover additional living expenses if you need to live elsewhere while your home is repaired.
Earthquake insurance premiums typically range from $800 to $1,350 but can be much higher depending on your property and its location. Deductibles are usually 10% to 20% of your coverage limit.
You can buy earthquake insurance from private insurance companies. In California, the California Earthquake Authority (CEA) is the largest provider of residential earthquake insurance. You can also ask your current homeowners insurance company if they offer earthquake coverage options.
