Earthquake Insurance: California's Rare Coverage

Despite California being home to 90% of the nation's earthquakes, only about 10-13% of California residents have earthquake insurance. This is a stark contrast to the 20% of Ridgecrest homeowners who have earthquake insurance, which is twice the state average. The low percentage of insured residents in California is concerning, given that the state is due for another major earthquake within decades, according to seismologists. The lack of insurance puts homeowners and the US economy at risk of catastrophic losses in the event of a significant earthquake.

Only 10-13% of California residents have earthquake insurance

Despite California's history of earthquakes, only 10-13% of California residents have earthquake insurance. This is surprising given that California has experienced 6 of the 10 costliest earthquakes in US history. Seismologists have also predicted that California is due for another major earthquake within decades.

There are several reasons why so few Californians have earthquake insurance. Firstly, people may not be aware that standard homeowners coverage does not include protection against earthquakes. Many people assume that earthquake damage is covered by their homeowner's policy, but it is not. Earthquake insurance needs to be purchased separately, and this can be costly. Premiums for earthquake insurance can range from $730 to $5,000 annually, and deductibles are typically between 5-25% of the total value of the home. For people of moderate income, this additional cost can seem like a luxury.

Secondly, some people believe that the government will provide financial assistance if an earthquake occurs. While the federal government may declare a federal emergency and provide some assistance, this support is limited. FEMA grants, for example, are capped at $32,000-$33,000, which is not enough to rebuild a home.

Thirdly, earthquakes are not very common, and it can be easy for people to forget about the risk or believe that it won't happen to them. As Glenn Pomeroy, CEO of the California Earthquake Authority, explained, "it's a little bit out of sight, out of mind."

Finally, some people may decide that the cost of premiums and deductibles is not worth it unless there is massive damage to their property. For those with greater means, the cost of insurance may seem too high compared to the perceived risk.

However, the lack of earthquake insurance in California could have catastrophic consequences for homeowners and the US economy if a major earthquake occurs.

People don't think earthquakes will happen to them

Why Californians Don't Think They Need Earthquake Insurance

It won't happen to me

People tend to think that an earthquake won't happen to them. Earthquakes are dangerous because they don't happen very often, and it's not visibly apparent that one will occur. The last big earthquake in California was 25 years ago, so it's not surprising that people get on with their busy lives and don't think about the risk. Human beings are "hard-wired" to believe that bad things will happen to someone else, not them. It's an "uphill battle" to convince people to get ready for something like an earthquake, which they don't think will happen.

It's too expensive

Earthquake insurance is expensive and can double the cost of covering your home, adding around $800 a year in premiums. Deductibles are also high, typically 15% of the total value of the home. For people of moderate income, that monthly price tag can seem like a luxury. People with greater means may also opt-out as the cost of premiums and deductibles only seem justified in the worst-case scenario.

The government will bail me out

Some homeowners have decided that, in the event of an earthquake, they will be covered by the federal government. While the president would likely declare a federal emergency, assistance is only intended to get people back into their homes. Disaster assistance from FEMA is capped at $32,000, and most home rebuilding aid comes in the form of loans.

I already have insurance

Many people think that earthquake damage is covered by their homeowner's insurance policy, but it's not. Earthquake coverage requires a separate policy, and many people don't realise this.

Earthquake insurance is expensive

The high cost of earthquake insurance is due to several factors. Firstly, it is separate from standard homeowners or renters insurance and is an additional policy. Secondly, the likelihood of an earthquake occurring in California is high, with the state experiencing 90% of the country's earthquakes. This increased risk means higher premiums for residents. The location of a home also impacts the cost, with houses closer to fault lines facing higher rates. The age and structure of a home can also affect the price, with older homes and multi-story homes typically costing more to insure.

The high cost of earthquake insurance leads many homeowners to forgo this type of coverage, despite the risk of earthquakes in California. In 2014, only 10% of California homeowners had earthquake insurance, and by 2019, this number had dropped further to around 13%.

However, the decision to opt out of earthquake insurance could be a risky one. Earthquakes can cause significant damage to homes, and without insurance, homeowners are liable to pay for costly repairs themselves. While the federal government may provide some assistance, it is often limited and may not be enough to cover the full cost of rebuilding.

To make earthquake insurance more affordable, some companies offer discounts for homes with retrofitting or earthquake-proof structural features. Shopping around and comparing quotes from multiple insurance providers can also help homeowners find lower rates.

Ultimately, the decision to purchase earthquake insurance depends on a homeowner's individual circumstances and their level of risk tolerance. While the insurance is expensive, it can provide valuable protection against the financial burden of earthquake damage.

People think the government will provide financial aid

Many Californians believe that the government will step in and provide financial aid in the event of an earthquake, which is one of the main reasons they choose not to purchase earthquake insurance. This belief is largely false, as government assistance is limited and often comes in the form of loans that need to be repaid.

The Federal Emergency Management Agency (FEMA), for example, offers emergency grants with a maximum of $32,000 to $33,000, which is insufficient to rebuild a home. Most home rebuilding aid comes in the form of loans administered by the Small Business Administration (SBA). These loans are typically triggered by about $$40,000 in personal property losses and $$200,000 in real estate losses. Additionally, these loans do not lower existing mortgage payments.

While the government may declare a federal emergency and provide some assistance, it is not enough to cover the cost of rebuilding a home or replacing belongings. This false sense of security can lead to significant financial losses for homeowners and renters in the event of an earthquake.

The lack of earthquake insurance among Californians is concerning, given the state's high risk of earthquakes and the potential for catastrophic damage. It is important for individuals to understand the limitations of government assistance and the importance of purchasing earthquake insurance to protect themselves financially.

The California Earthquake Authority (CEA) is working to educate residents about the importance of earthquake insurance and to offer affordable and flexible policies. The CEA provides most of the earthquake insurance policies in California, and their website offers resources and tools to help individuals understand their risk and make informed decisions about coverage.

While the cost of earthquake insurance can be a barrier for some, it is crucial to weigh the potential financial impact of an earthquake against the cost of insurance. Individuals should also be aware that their regular homeowners or renters insurance does not typically cover earthquake damage, and separate coverage is necessary.

By purchasing earthquake insurance, Californians can protect themselves and their families from financial hardship in the event of an earthquake, rather than relying on limited government assistance.

Earthquake insurance is not mandatory

There are several reasons why earthquake insurance is not mandatory. Firstly, people often believe that the likelihood of an earthquake affecting them is low, and they don't want to incur the additional cost of insurance. Earthquake insurance is expensive, and premiums can range from $800 to $5,000 annually, with deductibles typically around 15% of the total value of the home. For people of moderate income, this additional cost can seem like a luxury they can't afford.

Secondly, many people are unaware that earthquake damage is not covered by their homeowner's insurance policy. They assume that their existing policy will cover any damage caused by an earthquake, so they don't see the need to purchase additional insurance. However, earthquake damage is specifically excluded from standard homeowner's insurance policies in California and everywhere else in the country.

Thirdly, some people believe that the government will step in and provide financial assistance if their home is damaged by an earthquake. While the federal government may declare a federal emergency and provide some assistance, this is typically limited to emergency repairs and grants for individuals and households to get back into their homes. The maximum FEMA grant for a homeowner is about $32,000 to $33,000, which is not enough to rebuild a home.

Finally, unlike flood insurance, there is no government mandate for people in California or any other state to purchase earthquake insurance. This means that it is up to individual homeowners to assess their risk and decide whether to purchase earthquake insurance or not.

While earthquake insurance is not mandatory, it is worth considering for people who live in areas prone to earthquakes, such as California and Alaska. Earthquake insurance can provide financial protection in the event of damage to your home and belongings, and it can help you avoid the high costs of repairs or rebuilding. However, it is important to carefully review the policy details, as earthquake insurance typically has high deductibles and may not cover all types of damage.

Frequently asked questions