La Skyscrapers: Earthquake Insurance Essential?

Skyscrapers in Los Angeles are built to withstand earthquakes, but that doesn't mean they're not vulnerable to them. In fact, some experts believe that older welded steel moment-frame construction (WSMF) buildings, which were once considered “earthquake-proof”, could collapse in the event of a major earthquake.

While building codes are designed to keep walls standing and roofs intact, ensuring people feel safe, the goal is to make any damage survivable. After every major earthquake, new problem areas are discovered and, if they're bad enough, adjustments are usually made. For example, after the 1933 Long Beach quake, California passed the Field Act, requiring schools to meet certain levels of earthquake-resistant construction.

Despite these precautions, only 10% of California households have earthquake insurance, according to a 2014 report. This number has dropped by more than half since the 1989 Loma Prieta earthquake, which killed 63 people. One reason for the lack of insurance is that many people assume it's covered by their homeowner's policy. Additionally, premiums for earthquake insurance are high, ranging from $800 to $5,000 annually, with deductibles typically set at 15% of the home's total value. For people of moderate income, this can seem like an unnecessary luxury.

However, for those who can afford it, earthquake insurance can provide peace of mind and financial protection in the event of a major earthquake. Some people opt for a high deductible to keep premiums low, hoping that, in the event of a disaster, FEMA or other government assistance will help cover the costs of rebuilding. However, FEMA's emergency grants for homeowners are capped at $32,000, and most home rebuilding aid comes in the form of loans.

Earthquake insurance is expensive, with high deductibles and low coverage

Earthquake insurance is often expensive, with high deductibles and low coverage. The cost of earthquake insurance depends on factors such as the price of your home, the risk of the area you live in, the age of your home, the number of stories, the foundation materials, and framing materials. In some high-risk regions, the cost of earthquake insurance might exceed the cost of a homeowners insurance policy. For example, in California, the average earthquake insurance cost is $738 annually, with rates ranging from $300 per year in low-risk areas to $2,000 per year for older homes in high-risk areas.

Earthquake insurance typically has high deductibles, which can range from 10% to 25% of the dwelling policy limit. This means that if you have a $100,000 dwelling policy limit and a 15% deductible, you would be responsible for paying $15,000 out-of-pocket before the insurance company starts paying. Additionally, earthquake insurance may have low coverage, as it usually does not cover certain items such as vehicles, fences, pools, and collectible items in the home. It also typically does not cover damage to your land, such as landscaping.

However, earthquake insurance can still be valuable, especially if you live in an area prone to earthquakes. It can help cover the cost of repairing or rebuilding your home, replacing personal belongings, and paying for temporary housing if your home is uninhabitable. When deciding whether to purchase earthquake insurance, it is important to consider your ability to afford the cost of repairing or rebuilding your home, replacing personal belongings, and paying for temporary housing without insurance.

Regular insurance covers fire damage, even if caused by an earthquake

Regular insurance does cover fire damage, even if an earthquake causes it. However, it is important to note that regular insurance does not cover earthquake damage. This exclusion also applies to homeowners, renters, and condominium insurance policies. Therefore, if you want coverage for earthquake damage, you will need to purchase separate earthquake insurance.

Earthquake insurance is designed to help put a roof back over your head and cover some of the losses and damage that earthquakes can cause to your home, belongings, and other buildings on your property. It is worth noting that earthquake insurance policies typically have high deductibles, which can range from 10% to 25% of the dwelling policy limit. This means that if you have a high deductible and minor quake damage, the insurance company may not pay out.

In California, insurance companies are required by law to offer earthquake insurance when you purchase homeowners insurance. They must make this offer in writing every other year, stating the policy limits, deductible, and premium. You then have 30 days to accept the offer; otherwise, you are rejecting it. The California Earthquake Authority (CEA) provides most residential earthquake insurance policies in California, but you cannot buy a policy directly from them. Instead, you must purchase it from insurance companies that are CEA members.

While regular insurance covers fire damage resulting from an earthquake, it is essential to understand the limitations of standard insurance policies. They typically do not cover damage resulting from land movement or landslides. Additionally, they may not cover certain types of problems that occur right before, during, or after an earthquake, such as water damage, neglect, theft, or damage caused by motorized vehicles. Therefore, it is crucial to carefully review the exclusions and limits of your insurance policy to understand what is and isn't covered.

Only 10% of Californians have earthquake insurance

Earthquake insurance is not a legal requirement for Californians, and only about 10% of households in the state have it. This is despite the fact that California is home to two-thirds of the nation's earthquake risk, with a 99% chance of a magnitude 6.7 or greater earthquake in the next 30 years.

There are several reasons why so few Californians have earthquake insurance. Firstly, it can be expensive, with premiums ranging from $800 to $5,000 annually and deductibles typically set at 15% of the total value of the home. For a $400,000 home, the deductible would be $60,000, which may seem like a luxury to those on a moderate income.

Secondly, many people assume that earthquake damage is covered by their homeowner's insurance policy, but it is specifically excluded from these policies in California. Some also believe that the government will provide financial assistance in the event of a major earthquake, but this is not always the case. While the president would likely declare a federal emergency, assistance from the Federal Emergency Management Agency (FEMA) is limited to emergency repairs, with grants capped at $32,000 or $33,000. Most home rebuilding aid comes in the form of loans, which have to be paid back.

Another reason for the low uptake of earthquake insurance is that many people believe that an earthquake won't happen to them, or that the risk is low. As earthquakes don't happen very often, it's easy to have an "out of sight, out of mind" attitude. Additionally, California's population includes many immigrants, young people, and transplants with no personal experience of a devastating earthquake.

Finally, some people may choose not to buy earthquake insurance because they feel that the cost of premiums and deductibles is only justified in the worst-case scenario of massive damage to their property.

Despite these reasons, experts recommend that Californians consider purchasing earthquake insurance. While it may seem expensive, the cost of rebuilding a home after an earthquake would be much higher. And with the threat of a major earthquake always looming, it's better to be prepared.

Some HOAs carry blanket earthquake coverage

Some Homeowners' Associations (HOAs) carry blanket earthquake coverage, but it is not common. Most HOAs purchase a "blanket policy" or "master policy" that covers all properties in their association, but these policies typically do not include earthquake coverage. If they do, the amount of coverage may not be enough to cover all the damage caused by a major earthquake.

If you are a condo owner, you should check with your HOA to see if they have adequate earthquake coverage. If you are not satisfied with the amount of coverage, you can purchase additional insurance to protect your home and belongings.

In California, your condo-unit policy does not cover damages from earthquakes. A separate condo-unit earthquake insurance policy is required to cover the effects of a quake. If your HOA has earthquake insurance, it usually covers only the outside of the condominium buildings and common areas. Individual condo-unit owners' earthquake policies cover the contents inside the walls of the condo unit, not the structure itself.

If you live in an area that is prone to earthquakes, it is a good idea to get earthquake insurance.

Earthquake insurance is not mandatory

Additionally, the potential for government disaster relief may also play a role in the decision not to mandate earthquake insurance. While federal disaster relief is typically limited to low-interest loans, it can provide some assistance to those affected by earthquakes. The possibility of receiving government aid might influence the decision of whether or not to purchase earthquake insurance, especially for those who cannot afford the high costs of coverage.

Another reason earthquake insurance is not mandatory could be the perception of risk. While California experiences 90% of the country's earthquakes, not all areas are equally vulnerable. Individuals living in lower-risk locations may feel that the cost of insurance outweighs the potential benefits. Furthermore, the assumption that buildings will be safe in the event of an earthquake may also contribute to the decision not to mandate insurance. Many buildings in Los Angeles, including skyscrapers, have been constructed using methods believed to be earthquake-proof, such as welded steel moment-frame construction (WSMF). While there have been concerns about the vulnerability of WSMF buildings, no widespread consensus has emerged to justify mandatory inspections and repairs.

Lastly, the potential for retrofitting may also be a factor in the decision not to mandate earthquake insurance. Retrofitting involves making changes to a building to increase its safety and strength against earthquakes. This can be a costly process, but it may provide an alternative to insurance for some individuals. By retrofitting their homes, people can reduce the risk of earthquake damage without having to pay ongoing insurance premiums.

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