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Earthquake insurance: Do you need it?

By Insurance.com Posted : 08/05/2015

USGS Seismic Hazard Map

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Every state has earthquakes. Does that mean you need earthquake insurance?

You’ll have to consider both the likelihood of earthquake damage and the financial consequences. Could you afford to rebuild your home with no insurance? Could you pay to rent another home until yours is habitable again?

Even if you buy earthquake insurance, the financial hit can be huge.

Do I need earthquake insurance in Oklahoma? Seattle? San Francisco?

Earthquake insurance is not mandatory even in California. Ultimately your tolerance for risk determines whether it is worth the cost.

Earthquake policies tend to have large deductibles that mean homeowners are still on the hook for repair costs in all but the most catastrophic events. The question is, then, how likely is that catastrophic event?

According to the latest U.S. Geological Survey National Seismic Hazard Maps, 42 states have at least some potential for damage to buildings over the next 50 years. At highest risk are Alaska, Arkansas, California, Hawaii, Idaho, Illinois, Kentucky, Missouri, Montana, Nevada, Oregon, South Carolina, Tennessee, Utah, Washington and Wyoming.

The Seismic Hazard Map above outlines relative levels of earthquake risk, from the white and blue-gray areas with small probability of major earthquake damage, to the red zones, where even well-built structures face the possibility of major damage.

But consider more than just your geography. Other factors contribute to your risk.

  • The ground beneath your home matters. Sandy soil or fill are less stable than bedrock.
  • Wood-framed homes are more flexible than masonry such as brick.
  • Multiple-story homes are more vulnerable than single-story.
  • Homes on raised foundations are more vulnerable than those built at grade.
  • Lastly, the age of your home may determine whether it meets newer seismic standards. Older homes may be able to undergo a seismic retrofit that bolts the structure to the foundation and braces brick chimneys, among other improvements.

If you live in a red or brown zone, or have an older or brick home in a yellow zone, consider getting a quote so that you can weigh your options.

Is earthquake insurance worth it? Without an earthquake insurance policy, the potential financial burden is immense:

  • You must pay the entire cost of rebuilding your home.
  • You must continue to pay your existing mortgage.
  • You must pay for ongoing living expenses in another dwelling while the first is rebuilt.

That risk must be balanced against the cost of insuring the home plus your liability for deductibles.

Homeowners in the Gulf Coast states who lacked flood insurance faced similar exposure, and many of them were devastated financially after hurricanes Katrina and Rita.

What does earthquake insurance cover?

Earthquake insurance quotes

Before you decide to purchase earthquake insurance, review your home insurance policy and understand what is included and excluded.

Standard homeowners policies exclude damage from earthquakes and floods. Like flood insurance, earthquake coverage can be added through a separate policy, or you can add an earthquake endorsement to your existing homeowners policy.

An earthquake policy will cover repairs to the structure itself, minus your deductible amount, but it won’t cover any hazard that your other insurance policies do. For example, if an earthquake were to rupture a gas line and cause a fire, the homeowners policy would cover the fire damage. Similarly, if the garage collapses and crushes your vehicles, the comprehensive portion of your auto insurance policy would pay.

Earthquake policies can differ from company to company and state to state. Some may interpret even the word “earthquake” differently.

“What is an earthquake? That is one of those things that you need to define,” says Jack Taylor, Joseph S. Bruno Professor of Retailing at Birmingham - Southern College in Alabama, noting earth movements such as sinkholes, landslides, and eruptions are types of earthquakes that may be covered – or not – in an earthquake insurance policy. “Earthquakes can be created by nature or by man.”

 Some features in earthquake insurance policies may be optional. Ask your agent:

  • What types of earth movements (earthquakes, sinkholes or landslides) are covered? Are man-caused quakes covered?
  • Will the policy cover the cost to stabilize land beneath the home?
  • Does your coverage include replacing the structure, contents and landscaping and outdoor items such as swimming pools, hot tubs or fences?
  • Are alternative living costs covered if your home is not inhabitable?
  • Does the earthquake policy pay the costs of meeting updated building codes?
  • Does the policy cover repairs to brick, stone or rock veneer? Some don’t.

The cost of earthquake insurance

Only about 12 percent of homeowners in California have earthquake insurance. The reason is cost, which is often more than 10 times higher than in other parts of the country. In other places protection might cost as little as $50 a year.

Insurance.com sampled earthquake coverage costs in a variety of cities and states for a dwelling worth $300,000, using a deductible of 15 percent. Quotes for California homes were for stand-alone policies written by private carriers. Quotes in other states reflect the cost of an endorsement added to the homeowner's existing policy.

State, City, ZIP code, dwelling type, annual premium

  • California, Los Angeles (90066), frame: $1,157
  • California, Sacramento (95817), frame: $260
  • Colorado, Denver (80212), frame: $132; masonry: $230
  • North Dakota, Bismarck (58503), frame: $42; masonry $77
  • Oklahoma, Choctaw (73020), frame: $74, masonry $332
  • Oregon, Portland (97219), frame: $386; masonry: $1,405
  • South Carolina, Charleston (29414), frame: $450; masonry: $857
  • Tennessee, Cordova (38016), frame: $662; masonry: $1,004
  • Tennessee, Etowah (37331), frame $101, masonry $101
  • Virginia, Richmond (23235), frame: $74
  • Washington, Seattle (98199), frame $486

As a rule of thumb, figure a cost of up to $1.75 per $1,000 of home value in highest-risk states to as little as 50 cents per $1,000 in the lowest-risk states.

In general, you'll pay more for earthquake coverage if your home is:

  • Built of brick or masonry.
  • Multiple stories.
  • On a raised foundation.
  • Older (predating changes to building codes) and not retrofitted to limit damage.
  • In a higher-risk zone; that is, near an active area or on soil that is more likely to move.

The type of coverage will affect cost as well. A policy that covers replacement cost – rebuilding your home with new materials of similar quality -- will be more expensive than one that pays actual cash value, which considers the wear and tear of your home as it currently sits.

What is an earthquake deductible?

Homeowners comparing earthquake insurance quotes will need to focus not just on the annual premium, but on deductible amounts as well. Deductibles typically run 10 percent to 20 percent of the coverage limit.

If you insure your structure for $200,000 and have a 15 percent deductible, your out-of-pocket expense would be $30,000. If you have bought coverage for contents of the home or additional living expenses while it’s undergoing repairs, you may owe deductibles on those, too.

Earthquakes more than 72 hours apart are usually considered separate events and would incur a second claim and deductible.

The deductibles, large as they may be, are considered uninsured losses for the purposes of disaster relief. You may eligible for low-cost loans to cover them.

What about contents and living expenses?

Earthquake coverage for contents generally goes to a certain dollar amount, sometimes as low as $5,000. The reason is that most earthquakes won’t destroy living room furniture and other expensive pieces such as pool tables. But what if an antique doll collection or valuable art is destroyed during a quake? It’s important to make sure that it can be replaced or the owner is reimbursed at current market value if it is destroyed in an earthquake or its aftermath.

And you may have expenses other than your home, its contents and your yard and exterior furnishings.

“If you have to live outside your home for six to 12 months, you have to foot the bill for the mortgage and for living expenses in a different location,” says Adrianne Peixotto, a partner at ProInsurance in San Francisco. “So if you’re getting earthquake insurance, think of everything you might need.”

Renters insurance does not automatically cover living expenses for those dislocated.

Where can I buy earthquake insurance?

Unlike flood insurance, which is available from through FEMA (Federal Emergency Management Agency), earthquake insurance is offered by private insurance companies.

Consumers can add an earthquake endorsement to their homeowners policy, although "not every insurance company offers earthquake coverage," says Don Griffin, vice president of personal lines for the Property Casualty Insurers Association of America.

Separate, stand-alone home insurance earthquake coverage is also available through Insurance.com.

Homeowners looking for California earthquake insurance can buy from a private company or through the publicly managed California Earthquake Authority (Its current slogan is "California Rocks!").

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