Jeffrey Wade
Despite California experiencing 90% of the country's earthquakes, only 10-13% of California homeowners have earthquake insurance. The California Earthquake Authority (CEA) provides most earthquake insurance in California, offering policies for homeowners, mobile home owners, condo unit owners, and renters. The cost of earthquake insurance is based on several factors, including the location of the home, the cost to rebuild, the type of construction, and the coverage selected. While earthquake insurance is not required for homeowners in California, the lack of insurance carries the risk of catastrophic losses for homeowners in the event of a major earthquake.
| Characteristics | Values |
|---|---|
| Percentage of California homeowners with earthquake insurance | 10% to 13% |
| Percentage of American homeowners with earthquake insurance | 11% |
| Cost of earthquake insurance in California | Varies; can be expensive, with deductibles ranging from 5% to 15% |
| Factors influencing the cost of earthquake insurance | Location, cost to rebuild, type of construction, coverages selected, age of home, type of soil under the home |
| Earthquake insurance providers in California | California Earthquake Authority (CEA), admitted direct and surplus lines insurers, California Earthquake Authority members |
| Earthquake insurance coverage | Direct damage to property from earthquake shaking; does not cover fire, water damage, damage to vehicles, or damage to land |
| Benefits of earthquake insurance | Decreases the post-earthquake financial burden, serves as a pre-disaster funding tool, limits the economic impact of post-disaster recovery |
| Earthquake retrofitting programs in California | Earthquake Brace + Bolt, Earthquake Soft-Story |
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What You'll Learn
Why only 13% of California homeowners have earthquake insurance
California is one of the most active seismic areas in the US, and two-thirds of earthquake damage in the country happens in the state. Despite this, only 13% of California homeowners have earthquake insurance.
There are several reasons why earthquake insurance coverage is so low in California. Firstly, earthquake insurance is not mandatory in California or anywhere else in the US. It is not a requirement as flood insurance is for those living in a flood plain. Therefore, the onus is on individuals to purchase earthquake insurance, and many choose not to.
Secondly, the cost of earthquake insurance is a significant factor. Some people believe that earthquake insurance is expensive, with high deductibles, and does not cover enough to justify the cost. For example, earthquake insurance typically only covers direct damage to the property resulting from the earthquake. It does not cover indirect damage, such as fire and water damage, which is usually covered under a standard homeowners policy. The cost of earthquake insurance can also vary depending on where you live in California and the age of your home. Older homes, particularly those built before 1970, are more expensive to insure.
Another reason for the low uptake of earthquake insurance is a perception of low risk. Many people believe that earthquakes will not happen to them or that the damage will not be significant. Earthquakes are relatively rare, and the last major earthquake in California was over 25 years ago. As a result, people may not feel the same urgency to purchase earthquake insurance as they would for other types of natural disasters.
Finally, there may be some confusion or misunderstanding about what is covered by standard homeowners insurance. Some individuals may believe that earthquake damage is included in their homeowners policy when it is specifically excluded in California and across the US. Others may think that the government will step in and provide financial assistance in the event of an earthquake.
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Earthquake insurance isn't mandatory
The California Earthquake Authority (CEA) provides most earthquake insurance in California, and it offers policies for homeowners, mobile home owners, condo unit owners, and renters. You can only buy earthquake insurance from insurance companies that are CEA members, and you must have a residential property insurance policy in place to get a CEA earthquake policy. The CEA is a publicly managed, mostly privately funded entity, and its rates are based on science and research, not profit. The CEA also offers premium discounts of up to 25% for older houses that have been retrofitted to withstand earthquakes.
The cost of earthquake insurance depends on various factors, including the home's age, location, soil type, foundation type, construction, and roof type. Older homes, homes with more than one story, homes on sandy soil, and homes that are not up to code tend to have higher insurance costs. Additionally, the probability of an earthquake occurring can impact the decision to purchase insurance. While California is one of the most active seismic areas in the US, earthquakes are relatively rare, and the last significant earthquake was 25 years ago.
Another reason earthquake insurance isn't mandatory is that insurers need to manage their risk exposure. They limit the amount of risk they accept from any one region to protect themselves from financial instability. As a result, the availability and pricing of earthquake insurance are influenced by the need to spread risk across multiple insurers. Ultimately, the decision to purchase earthquake insurance is left to individual homeowners, and the low uptake suggests that many residents feel the likelihood of an earthquake impacting them is low enough to justify foregoing insurance.
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Cost of earthquake insurance
The cost of earthquake insurance in California varies widely depending on several factors. The average cost of earthquake insurance in California is around $1,874 annually for a single-family home. However, prices can range from $500 in Fremont to over $3,000 in Santa Clarita. The cost of earthquake insurance is influenced by various factors, including the location of the home, its age, and the materials used in its construction. Homes that are located near active fault lines, such as the San Andreas Fault, will typically have higher insurance costs due to the increased risk of seismic activity. For example, homes in San Francisco or San Bernardino tend to have higher insurance premiums because of their proximity to major fault lines.
The age of the home also plays a role in determining insurance costs, with older homes typically being more expensive to insure. The materials used in construction can also impact the cost of insurance, with homes built with reinforced concrete or steel potentially benefiting from lower premiums due to their higher resilience to earthquakes. Conversely, homes constructed with less resilient materials, like unreinforced masonry, may face higher insurance costs.
The California Earthquake Authority (CEA) provides a variety of coverage options for residential earthquake insurance, and they offer a free premium calculator on their website to help homeowners estimate the cost of insurance for their specific property. This tool takes into account factors such as the earthquake risk in the area, the coverages and deductibles desired, and the age and construction of the home.
While the cost of earthquake insurance can be significant, it is important to consider the potential financial impact of an earthquake. Earthquake insurance serves as a pre-disaster funding tool, helping to limit the economic burden on individuals, businesses, and the government in the event of an earthquake. By purchasing earthquake insurance, homeowners can protect themselves from the financial fallout of a natural disaster and ensure they have the necessary funds to repair or rebuild their homes.
It is worth noting that standard homeowners' insurance policies typically do not include coverage for earthquakes, and many people may not be aware of this exclusion. As a result, it is crucial for homeowners in California to carefully review their insurance policies and consider purchasing separate earthquake insurance to ensure they have adequate protection in the event of an earthquake.
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What earthquake insurance covers
Earthquake insurance is not a requirement for homeowners in California or anywhere else. However, only 13% of California homeowners have earthquake insurance, despite the state's vulnerability to earthquakes.
Earthquake insurance covers the costs associated with earthquake damage, which can help to reduce the financial burden on individuals, businesses, and society. It serves as a tool for funding recovery efforts and limiting the economic impact of post-disaster recovery.
Damage to Property
Earthquake insurance typically covers direct damage to the property resulting from the shaking of an earthquake. This includes damage to the structure of the home and attached features, such as a garage. It may also cover external structures that are not attached to the home, like a detached garage or fence.
Personal Property and Belongings
Earthquake insurance can protect your personal belongings inside your home. This includes coverage for personal liability and loss of use.
Building Code Upgrade
Earthquake insurance can help with the added costs of rebuilding to current building code standards after an earthquake. This includes emergency and necessary repairs to protect your home and family's safety from additional earthquake damage or aftershocks. Some policies may also include sub-limits for swimming pool and chimney coverage.
Additional Living Expenses
If your home becomes uninhabitable after an earthquake, earthquake insurance can provide coverage for additional living expenses, such as housing.
Indirect Damage
Indirect damage, such as fire and water damage from burst pipes, is typically covered under a separate homeowner's policy and not under earthquake insurance.
It is important to note that earthquake insurance does not always cover all potential losses, and deductibles and coverage limits may apply. Homeowners should carefully review their policies and understand their coverages, exclusions, and special limits. Traditional earthquake insurance covers "pure loss", meaning the value of lost items is assessed and reimbursed.
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Earthquake insurance and homeowners insurance
Earthquakes are an ever-present danger in California, with the state experiencing six of the ten costliest earthquakes in US history. Despite this, only about 10-13% of California homeowners have earthquake insurance. This is partly because earthquake insurance is not mandatory in California or anywhere else, unlike flood insurance for those living in floodplains.
The California Earthquake Authority (CEA), a not-for-profit, publicly managed, and mostly privately funded entity, provides most earthquake insurance policies in California. You cannot buy earthquake insurance directly from the CEA; instead, you must purchase it from insurance companies that are members of the CEA. The CEA offers earthquake policies for homeowners, mobile home owners, condo unit owners, and renters. The basic earthquake coverage offered by the CEA includes dwelling coverage, which insures your home up to a certain amount. The CEA also provides grants of up to $3,000 for seismic retrofitting of homes to increase their safety and strength in earthquakes.
Earthquake insurance is typically sold as an endorsement to a homeowners or business owners policy, but it can also be purchased as a standalone policy. The cost of earthquake insurance depends on various factors, such as the location of the home, the cost to rebuild, the type of construction, and the coverages selected. For example, the price of earthquake insurance in coastal SoCal (Ventura) is $1500/year with a $30,000 deductible, while in the Bay Area, it can be as low as $290 for the year with a 5% deductible. The cost is usually higher for older homes, homes with more than one story, homes built on sandy soil, and homes that are not up to code.
It is important to note that earthquake insurance does not cover everything that a homeowners policy does. For example, a homeowners policy covers fire damage, even if an earthquake causes it, so earthquake insurance does not. Earthquake insurance also does not cover damage to your land, such as sinkholes, or damage to your vehicles. Additionally, earthquake insurance usually does not cover water damage from outside the home, such as sewer or drain backup, flood, or tsunami. Therefore, it is essential to understand the coverages and exclusions of both earthquake insurance and homeowners insurance to ensure you have adequate protection in the event of an earthquake.
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Frequently asked questions
According to sources, only 10% to 13% of California homeowners have earthquake insurance.
Earthquake insurance is not mandatory anywhere, including California. Many homeowners believe that earthquake coverage is included in their homeowners insurance policy. People also think earthquakes won't happen to them, and they believe earthquake insurance is too expensive.
Earthquake insurance covers direct damage to the property resulting from the shaking of an earthquake. It does not cover fire damage, damage to your land, or damage to your vehicles.
