Earthquake Insurance: Is It Worth The Cost?

Earthquakes can cause a lot of damage to your home and your belongings. You may even have to move out of your home while it is repaired or rebuilt. Homeowners, renters, and condominium insurance policies do not cover damage from natural disasters such as earthquakes, floods, and landslides. Earthquake insurance can help pay for some of your losses. Earthquake insurance covers some of the losses and damage that earthquakes can cause to your home, belongings, and other buildings on your property. It is not mandatory but depending on where you live, your home might be at risk of suffering irreparable damage.

Earthquake insurance: what does it cover?

Earthquake insurance covers damage to your home, personal belongings, and additional living expenses if you need to live somewhere else temporarily after an earthquake. It is separate from standard homeowners or renters insurance policies, which typically don't include earthquake coverage. However, you may be able to add it to an existing homeowners insurance policy or purchase it as a separate policy.

There are three main components to earthquake coverage:

• Dwelling coverage: This helps pay for repairs or rebuilding your home after earthquake damage.
• Personal property coverage: This covers the cost of replacing personal items damaged or lost during an earthquake, such as TVs or furniture.
• Additional living expenses (ALE): This covers temporary costs, such as hotel stays or restaurant meals, if you need to live somewhere else while your home is being repaired.

It's important to note that earthquake insurance doesn't cover everything. Common exclusions include damage to vehicles, external water damage (e.g., flooding or tsunamis), swimming pools, landscaping, and fences. Additionally, earthquake insurance usually doesn't cover anything already covered by your homeowners policy, such as fire damage.

Is earthquake insurance mandatory?

Earthquake insurance is not mandatory, but it is highly recommended for those living in areas with a high risk of earthquakes. In California, for example, homeowners insurance companies are required to offer add-on earthquake coverage, but homeowners are not obligated to purchase it. However, considering the potential for earthquakes to cause catastrophic damage, it is essential to have adequate coverage.

The decision to purchase earthquake insurance depends on various factors, including the proximity to active fault lines, the seismic history of the region, the age and construction type of the home, and the financial ability to cover potential losses. While it may be costly, earthquake insurance can provide valuable protection against damage to your home and personal belongings. It is worth noting that homeowners and renters insurance policies typically do not cover earthquake damage.

Ultimately, the choice to buy earthquake insurance is a personal decision that should be made after carefully considering the risks and potential costs. Evaluating your specific situation and seeking expert advice can help determine if earthquake insurance is the right choice for you.

Pros and cons of earthquake insurance

Pros of Earthquake Insurance

• Earthquake insurance offers peace of mind.
• It can protect the money you have invested in your home if an earthquake damages it.
• If your home is damaged beyond habitability, you can be covered for additional living expenses like a rental home, hotel, meals, temporary storage, and even the cost of doing laundry while your home is being rebuilt or repaired.
• In lower-risk zones, the cost is lower.
• If you have a mortgage to pay off, earthquake insurance can help you avoid paying for your destroyed home while still paying off the mortgage.
• If you have paid off your home, earthquake insurance can help you avoid losing all the value it has built up over the years.
• Earthquake insurance can be especially useful if you live in an area prone to earthquakes, if you have a lot of equity in your home, or if you own your home outright.
• Earthquake insurance can cover the cost of rebuilding the exterior and interior structure of your home, depending on construction materials.
• Earthquake insurance can cover the cost of replacing damaged or destroyed personal property, with special limits placed on valuables like jewelry, furs, and collectibles.
• Earthquake insurance can cover the cost of living outside your home if it is temporarily uninhabitable, including accommodations, transportation, and dining.
• Earthquake insurance can be purchased as an addition to your standard homeowners insurance policy or bought individually from a statewide private agency.
• Earthquake insurance can help you avoid paying out of pocket for the full cost of rebuilding your home after an earthquake.

Cons of Earthquake Insurance

• Earthquake insurance can be expensive, with high premiums and deductibles.
• Earthquake insurance does not cover fire damage, damage to your land (erosion, cracks in the earth, or sinkholes), your vehicles, or water damage from outside your home (sewer or drain backup, or a flood).
• Earthquake insurance may not be worth it if you live in an area with low earthquake risk.
• Earthquake insurance may not be worth it if you have a low risk of earthquake damage, such as if your home is built on a solid foundation.
• Earthquake insurance may not be worth it if you can afford to rebuild your home without insurance.
• Earthquake insurance may not be worth it if you have a high deductible that exceeds the amount most people in your area pay for repairs.

How much does earthquake insurance cost?

Earthquake insurance is an optional insurance coverage that provides protection against damage caused by earthquakes to your home and property. This type of insurance is separate from standard homeowners or renters insurance.

The cost of earthquake insurance varies depending on several factors, including the location and age of the home, the number of stories in the home, the rebuilding cost, and the deductible. The average cost of earthquake insurance in the US is $800 per year, but it can range from $800 to $5,000 annually. In California, the average cost is higher, at $739 per year, and the cost of coverage in the state can range from $1,248 to $2,744 per year for $500,000 in coverage.

The cost of earthquake insurance is also influenced by the home's proximity to fault lines, with higher-risk locations resulting in higher insurance costs. The type of soil under the home also matters, as homes on sandy soil tend to have higher premiums than those on clay or rock. Additionally, older homes that have not been upgraded with safety features to mitigate earthquake damage will likely pay more for coverage.

The deductible for earthquake insurance is usually a percentage of the coverage limit, typically ranging from 10% to 20%. A higher deductible generally leads to lower insurance premiums.

To determine the cost of earthquake insurance for a specific property, it is recommended to use tools such as the California Earthquake Authority's (CEA) premium calculator for California residents or to consult with insurance companies directly.

Earthquake insurance: is it worth it?

Earthquakes can cause a lot of damage to your home and your belongings. You may even have to move out of your home while it is repaired or rebuilt. Earthquake insurance can help pay for some of your losses. However, it is not mandatory and can be expensive. So, is it worth it?

Earthquake insurance covers damage to your home, belongings, and other buildings on your property. It can also pay for additional living expenses, such as hotel and restaurant bills, if you cannot live in your home during repairs.

Earthquake insurance usually does not cover damage to your land, such as sinkholes, or to your vehicles. It also does not cover water damage from outside your home, such as sewer backup or flood.

The cost of earthquake insurance varies depending on factors such as the location of your home, the cost to rebuild, the type of construction, and the coverage limits. In California, the average cost of earthquake insurance is $800 per year.

Whether or not earthquake insurance is worth it depends on your individual circumstances. If you live in an area that is at high risk for earthquakes, then it may be a worthwhile investment. However, if you live in an area with a low risk of earthquakes, the cost of the insurance may outweigh the potential benefits.

It is important to consider your financial situation and your tolerance for risk when deciding whether or not to purchase earthquake insurance. If you can afford to repair or rebuild your home in the event of an earthquake, then you may not need the insurance. However, if you would struggle to cover the costs of repairs or temporary housing, then earthquake insurance could provide valuable peace of mind.

Ultimately, the decision to purchase earthquake insurance is a personal one and will depend on your individual circumstances and risk tolerance.

Frequently asked questions