Posted : 03/17/2011
Horrific earthquakes in Japan, New Zealand, Chile and Haiti in recent years have left many Americans wondering if their home insurance policies would cover them in the aftermath of a major temblor.
The short answer is that property damage caused by the shaking movement of the earth is not covered by a standard homeowners insurance policy, although some subsequent damage may be eligible for coverage.
However, you can still can buy earthquake insurance.In some cases, homeowners can add an earthquake endorsement to their home insurance 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, standalone earthquake policies also are available.
Unlike flood insurance, which is available from through FEMA (Federal Emergency Management Agency), earthquake insurance is offered by private insurance companies.
Earthquake insurance covers both the structure and the contents of a home. Homeowners decide how much insurance they want to purchase for each type of coverage.
"Generally, the structure coverage is more important because the more costly damage from an earthquake is usually in terms of cracks in the foundation rather than in damage to personal possessions," Griffin says.
Earthquake insurance also reimburses living expenses for homeowners while their property is repaired. Some insurance companies offer endorsements for outbuildings or swimming pools. In other cases, standard home insurance policies cover those items, says Griffin.
Griffin says earthquake policies and endorsements have deductibles that usually are set as a percentage of the home's replacement value from 1 percent to 10 percent. In the case of an endorsement, the earthquake deductible is separate from and in addition to the deductible on the home insurance policy.
Some people might be tempted to skip earthquake coverage unless they live in California. But earthquakes can impact most – if not all – states.
The Insurance Information Institute says the entire Northwest U.S. is at high risk for earthquakes. Earthquakes are also a worry in several states along the New Madrid seismic zone within the central Mississippi River valley.
"If you live in an earthquake zone, you should realize that – as we saw after Hurricane Katrina – a government bailout could be long in coming and short on funding," says Pete Moraga, a spokesperson for the Insurance Information Network of California. "Homeowners should think about what they are doing to mitigate their exposure to the financial impact of an earthquake."
Earthquake insurance rules are slightly different in California. There, earthquake insurance is available from private insurers and from the California Earthquake Authority, a privately funded, publicly managed organization.
Only 11.9 percent of California homeowners have earthquake insurance from either a private insurance company or CEA, according to the Insurance Information Network of California.
Moraga says the average annual premium for a CEA earthquake policy in 2009 was $707.
In California, the CEA policy excludes damage to swimming pools, spas, driveways, outbuildings, crystal, chandeliers and numerous other contents specified in the policy, Moraga says.
"We always urge homeowners to read their policies and understand what is and what is not covered," he says.
Moraga says that CEA policies cover structural damage up to the limit of the standard home insurance policy but limit contents coverage to $5,000 to $15,000 and loss of use coverage for living expenses to between $1,500 and $2,000. Private insurers in California may offer different coverage limits.
"If your car is damaged or destroyed by an earthquake, that damage is covered by your comprehensive coverage in your auto insurance policy," says Moraga.
Earthquake insurance deductibles in California are higher than in other parts of the country because of the level of risk is higher, Moraga says.
Some of the worst damage from an earthquake can follow the quake when gas pipes burst or cracked water pipes cause a flood. Homeowners insurance policies often cover such damages.
"A fire is a 'covered peril' in a standard home insurance policy and will be covered regardless of whether it is caused by an earthquake or not," says Moraga. "Homeowners who do not have earthquake insurance will still have fire damage covered."
Flood damage caused by a tsunami following an earthquake, such as occurred in Japan, would require a separate flood insurance policy, according to Moraga.
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