California Earthquake Insurance: Who's Covered?

Despite California being home to 90% of the nation's earthquakes, only 10-13% of California residents have earthquake insurance. This is a shockingly low number, especially considering the history of deadly quakes in the state. So, why do so few Californians have earthquake insurance? Well, it seems that people don't think it will happen to them, they think it's too expensive, or they believe the government will step in and help.

Only 10-13% of California homeowners have earthquake insurance

Despite California being the state most prone to earthquakes in the US, only 10-13% of California homeowners have earthquake insurance. This is surprising given that California experiences 90% of the nation's earthquakes.

There are several reasons why so few people in California have earthquake insurance. Firstly, many people assume that earthquake damage is covered by their homeowner's insurance policy. However, this is not the case, and earthquake insurance must be purchased separately. Additionally, the cost of earthquake insurance can be prohibitively expensive, with premiums ranging from $730 to $5,000 per year. For people of moderate income, this additional cost can seem like a luxury.

Another reason for the low uptake of earthquake insurance is that people believe it won't happen to them. As earthquakes don't occur very often, it's easy for people to have an "out of sight, out of mind" attitude. According to Glenn Pomeroy, CEO of the California Earthquake Authority, "people don't think it's going to happen to them, and they think it costs too much."

Furthermore, some people believe that the government will provide financial assistance if their home is damaged by an earthquake. However, while the federal government may declare a federal emergency and provide some assistance, it is limited. FEMA grants, for example, are capped at $32,000-$33,000, which is not enough to rebuild a home.

The low percentage of California homeowners with earthquake insurance is concerning, given the high risk of earthquakes in the state. Seismologists predict that California is due for another major earthquake within decades, which could result in catastrophic losses for homeowners and the US economy.

Earthquake insurance is expensive

The high cost of earthquake insurance is due to several factors, including the location of the home, the age of the home, the cost to rebuild the home, and the chosen deductible. If a home is located in a high-risk area for earthquakes, the insurance premiums will be higher. Older homes without upgraded safety features will also result in higher earthquake insurance costs. The more expensive a home is, the higher the rebuilding costs will be, leading to higher insurance premiums. Additionally, a higher deductible will result in lower insurance premiums, but this also means the policyholder will have to pay more out of pocket before the insurance coverage kicks in.

The high cost of earthquake insurance leads many homeowners to forgo this type of optional coverage. Earthquake insurance is not required by law, and with the already high cost of living in California, some people may choose to allocate their budget to other essential expenses. However, this leaves them vulnerable to financial losses in the event of an earthquake.

While the cost of earthquake insurance may be a significant expense, it is important to weigh the risks and potential costs of not having coverage. Earthquakes can cause extensive damage to homes and property, and without insurance, homeowners will be liable to pay for the repairs themselves. In California, where earthquakes are common, the risk of damage is higher, and the potential costs of repairs can be significant.

To make earthquake insurance more affordable, some insurance companies offer discounts or lower rates for certain factors. For example, homes that have been retrofitted with earthquake-proof structural features may be eligible for discounts. Additionally, shopping around and comparing quotes from multiple insurance companies can help homeowners find the most affordable coverage for their needs.

People don't think earthquakes will happen to them

Despite California's history of deadly earthquakes, only about 10% of California households have earthquake insurance. This is largely because people don't think it will happen to them. Earthquakes are dangerous because they don't happen very often, and it's not visibly apparent that one will occur.

People go about their busy lives and have a lot of other things to attend to on a budget. Earthquakes are a silent danger that lurks beneath the surface. However, scientists predict a major earthquake in the near future, and there is a 99% chance of one or more magnitude 6.7 or greater earthquakes striking California.

Most Californians live within 30 miles of an active earthquake fault, and there are nearly 16,000 known earthquake faults in the state. Earthquakes can happen anywhere in California, and damage to homes and personal property is always possible.

Even if your home is miles away from a fault or the epicenter of an earthquake, you could still experience damage from an earthquake. People have short memories, and after a big disaster, attention fades. It's hard to get the average person to prepare in a rational way for an event with major consequences but a relatively low probability.

However, the recent earthquakes in Southern California were a wake-up call for many people, and website traffic for the California Earthquake Authority increased tenfold as people sought more information about earthquake insurance.

People think the government will provide financial aid

California has a history of deadly earthquakes, and yet, only about 10% of California households have earthquake insurance. Many people believe that the government will provide financial aid in the event of an earthquake, so they don't see the need for insurance. However, this is a misconception. While the government may provide some assistance, it is usually limited and often comes in the form of loans that need to be repaid.

The Federal Emergency Management Agency (FEMA), for example, offers grants for emergency repairs, but these are capped at around $30,000 to $33,000. This amount is unlikely to cover the cost of rebuilding a home, especially considering the high cost of housing in California. The current median home price in the state is over $400,000, and in some of the counties most at risk, it is even higher.

Additionally, government disaster assistance typically only comes in the form of small grants or capped loans, which may cover only a portion of repair costs. Moreover, this assistance is intended to help individuals and households get back into their homes, not to restore damaged property to its pre-disaster condition.

The California Earthquake Authority (CEA), a non-profit organization that provides most residential earthquake insurance policies in the state, emphasizes that government assistance is not always available. First, one must qualify for it, and even if granted, it is often limited to urgent health and safety needs. Furthermore, government loans to rebuild may fall short of what is needed, and like a mortgage, they must be repaid.

The misconception about government aid, along with the perceived complexity and cost of insurance, contributes to the low uptake of earthquake insurance in California. People also tend to underestimate the likelihood of an earthquake occurring and the potential impact on their homes and finances. However, as CEO of the CEA, Glenn Pomeroy, points out, two-thirds of earthquake damage in the country happens in California, and the entire state is vulnerable to earthquakes.

While it is understandable that people may have concerns about the cost of insurance, it is important to weigh this against the potential financial impact of an earthquake. Earthquake insurance can provide valuable protection and peace of mind, especially for those living in high-risk areas.

People think it's covered in their homeowner's policy

Many Californians believe that earthquake damage is covered by their homeowners' insurance policy. However, this is not the case. Earthquake damage is specifically excluded from homeowners' insurance policies in California and everywhere else in the US. This means that without a separate earthquake insurance policy, homeowners will be responsible for covering 100% of the costs of repairing their homes and replacing their belongings after an earthquake.

The California Earthquake Authority (CEA) is a non-profit organisation that sells earthquake insurance plans. According to the CEA, only 10-13% of California homeowners have earthquake insurance, despite the state's history of deadly earthquakes and its high risk of experiencing another major earthquake in the future.

The low uptake of earthquake insurance in California can be attributed to several factors, including the cost of premiums, a lack of awareness about the need for separate coverage, and the perception that earthquakes are unlikely to occur. Many people also believe that the government will provide financial assistance in the event of a disaster, but this support is typically limited and often comes in the form of loans that must be repaid.

It is important for Californians to understand the risks associated with earthquakes and to consider purchasing separate earthquake insurance to protect their homes and belongings.

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