Haris Ashley
Earthquakes can be devastating, and while insurance can help with recovery, it's not always easy to obtain earthquake coverage. Standard homeowners' insurance typically excludes earthquake damage, and in the 1990s, many insurers stopped offering earthquake policies due to the potential financial risks. Today, earthquake insurance is often expensive and may not be a realistic option for everyone. However, for those living in high-risk areas, earthquake insurance can provide valuable protection. This insurance covers pure loss, reimbursing policyholders for the assessed value of items lost or damaged. This type of insurance is especially relevant for those living near fault lines or in earthquake-prone regions, and various options are available, including traditional earthquake insurance, parametric insurance, and government-backed schemes.
| Characteristics | Values |
|---|---|
| Standard homeowners insurance coverage for earthquakes | No |
| Earthquake insurance coverage | Yes |
| Average earthquake insurance premium cost | $800–$1,350 |
| Earthquake insurance deductible | 10%–20% of coverage limit |
| Earthquake insurance rate determinants | Location, probability of earthquake loss, home building material |
| Earthquake insurance exclusions | Landscaping, pools, fences, masonry, separate buildings, vehicle damage, water damage |
| Earthquake insurance coverage options | Dwelling coverage, personal property coverage, additional living expenses or loss of use coverage, building code upgrade expenses, emergency repairs |
| Earthquake insurance providers | California Earthquake Authority (CEA), New Zealand Earthquake Commission (EQC), Japanese Earthquake Reinsurance (JER) |
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What You'll Learn
Earthquake insurance options and availability
Earthquake insurance is an important consideration for homeowners, renters, and condominium owners. Standard homeowners' insurance does not typically cover earthquake damage, so it is often necessary to purchase a separate earthquake insurance policy or endorsement.
In California, the California Earthquake Authority (CEA) provides most earthquake insurance policies in the state. To obtain a CEA earthquake policy, you must already have a residential property insurance policy in place and purchase your CEA policy from the same insurance company that provides your residential coverage. The CEA offers policies for homeowners, mobile home owners, condo unit owners, and renters, with coverage options for dwellings, personal property, and additional living expenses (ALE) or loss of use.
If you live in an area at risk for earthquakes, your home insurer may offer earthquake coverage options or endorsements that can be added to your existing policy for an additional premium. These options may include earthquake insurance, an earthquake endorsement, or an earth movement insurance rider. It is important to note that earthquake insurance does not typically cover damage to your land, vehicles, or water damage from outside sources such as floods or tsunamis.
In addition to traditional insurance options, parametric insurance is a relatively new approach that insures policyholders against specific events by using predefined parameters. This means that payments are triggered when certain criteria, such as ground shake intensity, are met and verified by a third party.
While earthquake insurance is not a realistic option for everyone due to increasing insurance premiums, it is essential to take proactive steps to prepare financially for potential disasters. This may include exploring various financial tools, such as savings, loans, and disaster assistance, to ensure financial resilience in the event of an earthquake.
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Earthquake insurance exclusions
Earthquake insurance is not typically included in standard homeowners insurance policies. However, if you live in an area prone to earthquakes or tremors, you may be able to purchase a separate earthquake policy or add an earthquake endorsement to your existing policy for an additional premium. While earthquake insurance can provide financial protection in the event of an earthquake, it is important to understand that there are exclusions and limitations to what is covered.
- Damage already covered by your homeowners policy: Earthquake insurance typically does not cover damage that is already included in your homeowners policy. For example, if your homeowners insurance covers fire damage, even if an earthquake causes the fire, the earthquake policy will not provide duplicate coverage for the same loss.
- Land damage: Earthquake insurance generally does not cover damage to your land, such as sinkholes, erosion, or other hidden openings that may occur as a result of an earthquake. However, limited additional coverage may be available to restore or stabilise the land.
- Vehicle damage: Most earthquake insurance policies do not cover damage to vehicles. It is recommended to review your auto insurance policy to understand if it provides coverage for earthquake-related damage.
- Water damage from external sources: Earthquake insurance typically excludes coverage for water damage from outside your home, such as sewer or drain backup, floods, or tsunamis. For instance, if an earthquake causes a nearby lake to flood your home, the resulting water damage would not be covered by earthquake insurance.
- Separate structures and landscaping: Earthquake insurance usually covers your primary dwelling and attached structures. However, it may not extend to separate buildings, landscaping, pools, fences, or masonry.
- Indirect damage: Earthquake insurance primarily covers direct damage to your property caused by the shaking of an earthquake. Indirect damage, such as fire or water damage from burst pipes, is typically covered under a standard homeowners policy.
It is important to carefully review the terms and conditions of your specific earthquake insurance policy to understand the exclusions and limitations that may apply. These exclusions can vary among insurance providers, so it is essential to clarify what is and is not covered before purchasing a policy.
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Financial preparedness for earthquakes
Earthquakes are sudden, rapid shakings of the earth caused by the shifting of underground rock. They can happen anywhere and cannot be predicted. While earthquakes cannot be prevented, financial preparedness can help you manage the risk and recover faster after a disaster. Here are some steps to financially prepare for earthquakes:
Understand Your Risk
Recognize that earthquakes can occur anywhere, and forty-five states and territories in the United States are at risk. If you live in an area prone to earthquakes or near a fault line, it is crucial to acknowledge your risk and take appropriate measures.
Secure Earthquake Insurance
Standard homeowners' insurance typically does not cover damage caused by earthquakes or land movement. Therefore, consider purchasing separate earthquake insurance or adding an earthquake endorsement to your existing policy. Earthquake insurance can provide financial protection by reimbursing you for the value of items lost or damaged due to the earthquake. However, it is essential to review the exclusions and limitations of your policy, as earthquake insurance usually does not cover landscaping, pools, fences, separate buildings, vehicles, or water damage from outside sources.
Prepare Your Space
Take steps to secure your home and minimize potential damage. Identify and address hazards such as tall, heavy furniture that could topple, unsecured water heaters, stoves or appliances that could rupture gas or electrical lines, and hanging plants in heavy pots. By reducing potential hazards, you can decrease the risk of extensive damage and minimize financial losses.
Develop an Emergency Plan
Create an earthquake preparedness plan for yourself and your family. Identify the necessary supplies and resources you may need in the event of an earthquake, and organize them in an easily accessible location. Practice "Drop, Cover, and Hold On" techniques with your household to ensure everyone knows how to protect themselves during an earthquake.
Build Financial Resilience
In addition to insurance, focus on building financial resilience by saving for emergencies. Set aside funds specifically for disaster recovery, as this can provide a safety net and help you manage the financial impact of an earthquake. Explore other financial tools, such as loans and disaster assistance programs, to understand the support options available in the event of a financial crisis caused by an earthquake.
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Earthquake insurance rates
In the United States, earthquake insurance is typically an add-on to homeowners' insurance policies or can be purchased from specialized providers. Standard homeowners' insurance does not usually cover earthquake damage, so residents in high-risk areas may need to buy separate earthquake insurance policies. The cost of earthquake insurance can be high, with national coverage costing around $800 per year, and prices climbing in areas with a higher risk of earthquakes.
The California Earthquake Authority (CEA), one of the largest earthquake insurance providers, offers policies for homeowners, mobile home owners, condo unit owners, and renters. To purchase a CEA policy, you must go through your residential insurer, and you cannot buy it directly from CEA. The CEA website provides a premium calculator to estimate the cost of a residential earthquake insurance policy.
Other factors that can influence earthquake insurance rates include the deductible amount, which is typically between 15-20% of the dwelling coverage limit, and the coverage limits set by the policy. Higher-risk locations, such as those near active fault lines, will have higher deductibles and premiums. Additionally, earthquake insurance may not cover all types of damage, such as landscaping, pools, fences, separate buildings, or vehicles, so it is essential to carefully review the policy's exclusions.
It is recommended to consult with an insurance agent to determine the best earthquake coverage options based on your specific circumstances and location.
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Earthquake insurance claims
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, you may be able to purchase separate earthquake insurance or add an earthquake endorsement to your existing policy for an additional premium. This type of insurance is designed to cover the financial losses incurred due to direct damage caused by an earthquake, including damage to your dwelling and personal property.
When making an earthquake insurance claim, it is important to act promptly and notify your insurance agent, broker, and carrier in writing, even if you believe the damage may not exceed your deductible. All insurance policies have exclusions, so it is crucial to understand what your policy covers and what it does not. Common exclusions in earthquake insurance policies include damage that is already covered by your homeowners policy, such as fire damage, as well as damage to your land, vehicles, and water damage from outside sources.
To ensure your claim is properly assessed, it is recommended to seek independent opinions from qualified professionals, such as licensed structural engineers or experienced contractors, who can help identify hidden structural and cosmetic damage. Do not solely rely on the insurance company's adjuster, as they may not be specialised in identifying earthquake damage. Additionally, be cautious of insurance companies pressuring you to accept their contractors' repair estimates or methods, as they may not meet local building standards. You are entitled to receive payment based on "like kind and quality," and you have the right to demand that your claim be settled for the amount estimated by your chosen contractor.
It is important to carefully review all documents and seek proper legal advice before signing any releases or waivers. Keep detailed records of your communication with the insurance company, including the names and titles of the individuals you speak with, dates, and discussion points. Remember that earthquake insurance claims are typically subject to higher deductibles than standard homeowners insurance, and all earthquake events within a 72-hour period are usually considered a single event with one claim and set of deductibles.
Lastly, it is worth noting that earthquake insurance rates can be high, and coverage may be challenging to obtain in certain areas due to increased premiums. However, the financial impact of an earthquake can be devastating, and insurance can provide a safety net to help manage risk and facilitate faster recovery.
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Frequently asked questions
No, standard homeowners insurance does not typically include coverage for earthquakes. However, you can purchase earthquake insurance separately or as an add-on to your existing insurance policy.
Earthquake insurance covers damage caused by an earthquake to your property and belongings. It can also cover additional living expenses if you need to live somewhere else 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. If your home is in a high-risk area or is older, you will likely pay more for coverage.
