Earthquake Insurance: Who's Covered?

Despite the high risk of earthquakes in many US states, few people have earthquake insurance. In California, only 10-13% of households have earthquake insurance, even though the state has experienced 6 of the 10 costliest earthquakes in US history. Similarly, in Washington, only 11.3% of residents were covered in 2017, and in Missouri, there has been a 49% decrease in earthquake coverage in the New Madrid region from 2000 to 2022. A poll by the Insurance Information Institute found that only 11% of American homeowners had earthquake insurance.

Only 10% of California residents have earthquake insurance

Despite being the state most prone to earthquakes, only 10% of California residents have earthquake insurance. This is a shockingly low number, especially when you consider the fact that two-thirds of earthquake damage in the country occurs in California alone.

There are several reasons why so few people in California have earthquake insurance. Firstly, people don't believe that an earthquake will happen to them. Earthquakes are not very common, and it's hard to predict when they will occur. As a result, people tend to have an "out of sight, out of mind" attitude towards them.

Additionally, the cost of earthquake insurance is a significant factor. Earthquake insurance can be expensive, sometimes doubling the cost of covering your home, with premiums ranging from $800 to $5,000 annually. The deductible for earthquake insurance can also be high, typically ranging from 5% to 25% of the total value of the home. For people of moderate income, this added expense can seem like a luxury they can't afford.

Another reason for the low uptake of earthquake insurance is the belief that the government will step in and provide assistance in the event of a major earthquake. While the federal government may declare a federal emergency and offer some assistance, this is usually limited to emergency repairs and grants or loans that must be repaid.

Furthermore, some people may not realize that earthquake damage is not covered by their homeowner's insurance policy. Standard homeowners' insurance does not typically cover damage from natural disasters such as earthquakes, floods, and landslides. This lack of awareness leads people to believe they are covered when they are not.

Finally, there is no government mandate for people in California to purchase earthquake insurance, unlike flood insurance for those living in flood plains. This lack of a requirement may contribute to the low number of people opting for earthquake insurance.

The low percentage of California residents with earthquake insurance carries significant risks. Seismologists predict that California is due for another major earthquake within decades, and the lack of insurance could result in catastrophic losses for homeowners and the US economy.

California has experienced 6 of the 10 costliest earthquakes in US history

California is one of the most seismically active states in the US, with 90% of the country's earthquakes occurring there. Despite this, only about 10% of California residents have earthquake insurance. This is partly because people don't think earthquakes will happen to them and partly because of the cost of insurance.

• 1994 Northridge quake: $44 billion
• 1989 Loma Prieta earthquake: $10 billion
• 1971 Sylmar earthquake: $553 million
• 1906 Great San Francisco Earthquake: $524 million
• 1987 Whittier Narrows earthquake: $360 million
• 1992 Southern California earthquake: $100 million

Earthquake insurance is expensive, with premiums ranging from $800 to $5000 annually

Earthquake insurance is an optional form of insurance that provides protection against damage caused by earthquakes to one's home and property. It is separate from standard homeowners or renters insurance. Due to the high cost of earthquake insurance, most homeowners choose not to carry this additional coverage. The annual cost of earthquake insurance can range from $800 to $5,000, with an average of $850 per year, according to AAA. However, the exact cost depends on various factors, such as the location of the home, the age of the home, the rebuilding cost, the deductible, and the coverage limit.

The high cost of earthquake insurance is often due to the high risk associated with earthquakes. In the event of an earthquake, the damage can be extensive and costly to repair. To mitigate this risk, insurance companies charge higher premiums for earthquake coverage. Additionally, the likelihood of an earthquake occurring in certain regions, such as California, Washington, and Missouri, also contributes to the high cost of insurance in those areas.

The cost of earthquake insurance can be further influenced by the specific features of the home. For example, older homes without upgraded safety features or those with multiple stories tend to have higher insurance costs. The type of soil underneath the home also plays a role, with sandy soil resulting in higher premiums than clay or rock.

It is worth noting that standard homeowners or renters insurance typically does not cover earthquake damage. As a result, individuals who want protection against earthquake damage need to purchase separate earthquake insurance. This separation is due to the high risk and potential financial impact associated with earthquakes, which are not usually covered by standard insurance policies.

While earthquake insurance can be expensive, it can provide valuable protection for individuals living in areas prone to earthquakes. The decision to purchase earthquake insurance depends on factors such as the likelihood of earthquakes in the area, the potential damage to the home, and the financial ability to repair or rebuild without insurance assistance.

People don't think earthquakes will happen to them

Earthquakes are sudden and unpredictable, and people often don't think it will happen to them. This is a dangerous mindset, as earthquakes can cause immense damage to homes and belongings, and can even result in people having to move out temporarily while repairs are made.

In California, for example, earthquakes are a fact of life. The state experiences 90% of the country's earthquakes, yet only 10% of residents have earthquake insurance. This percentage has been as low as 13% in the past. This is despite the fact that two-thirds of earthquake damage in the US occurs in California.

The CEO of the California Earthquake Authority, Glenn Pomeroy, attributes this to people thinking it won't happen to them and that insurance is too costly. Earthquakes are not very common, and it can be easy to forget about the danger when it's not at the forefront of people's minds. As Pomeroy says, it's a case of "out of sight, out of mind". People have busy lives and other financial priorities, and it can be easy to neglect earthquake insurance when it's not mandatory.

However, this can be a costly mistake. While some government assistance is available after a disaster, it is limited. For example, a FEMA grant is capped at $33,000, which is not enough to rebuild a home. Earthquake insurance can provide vital financial support to help people recover from the devastation of an earthquake.

People think the government will bail them out after an earthquake

In the aftermath of a disaster, people often expect the government to bail them out. However, this may not always be the case, and it is essential to be prepared and insured. Standard homeowners' insurance does not typically cover earthquake damage, and separate earthquake insurance is necessary to protect against financial losses.

While some people may assume that the government will provide financial assistance or rebuild their homes after an earthquake, the reality is that government aid is often limited. In the United States, for example, the Federal Emergency Management Agency (FEMA) offers grants for emergency repairs, but the maximum amount may not be sufficient to cover the cost of rebuilding a home. Additionally, there is no government mandate for people to purchase earthquake insurance, unlike flood insurance for those living in flood-prone areas.

The perception that the government will provide sufficient aid can lead to a lack of urgency in obtaining earthquake insurance. This is evident in California, where only about 10-13% of homeowners have earthquake insurance, despite the state experiencing 90% of the country's earthquakes. The low uptake of earthquake insurance in California may be attributed to a combination of factors, including the cost of insurance, the perception of low risk, and the expectation of government assistance.

To address the issue of low insurance coverage, it is crucial to educate the public about the importance of earthquake insurance and the limitations of government aid. People need to understand that earthquakes can cause significant financial losses, and relying solely on government assistance may not be sufficient. By increasing awareness and providing clear information about insurance options, individuals can make informed decisions to protect themselves financially in the event of an earthquake.

Furthermore, it is essential to recognize that earthquakes are not solely a California problem. Other states, such as Washington and Missouri, have also experienced a decrease in insurance coverage due to skyrocketing premiums. Therefore, it is vital for individuals across the country to assess their risk and consider obtaining earthquake insurance to ensure they are adequately protected in the event of a disaster.

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