Do I need earthquake insurance?

Figuring out whether you need earthquake insurance is a matter of assessing multiple factors like the risk of an earthquake in your area, the financial losses you could face from earthquake damage, and your ability to afford earthquake insurance premiums and deductibles.

Unlike homeowners insurance, which mortgage lenders require, earthquake insurance is optional.

If a homeowner is trying to determine if they need earthquake insurance, “first, they should consider the earthquake risk in their location. Areas near fault lines or with a history of seismic activity generally warrant additional protection,” says Gregg Barrett, CEO of WaterStreet Company, an insurance software provider.

Most people think only places like California, Hawaii and Alaska are prone to earthquakes, but you might be surprised to learn you live in an area with a high risk of earthquake damage. Places like Charleston, South Carolina and the Central Mississippi River Valley are also high-hazard areas.

In addition to weighing the likelihood of an earthquake in your area, you also want to think about what earthquake damage could cost you compared to the cost of insurance.

“The potential cost of damages should also be a significant consideration; they can compare the rebuilding costs post-earthquake to the premiums and deductibles of the insurance,” says Barrett. “On top of that, homeowners should evaluate the structural integrity of their home and whether modifications can be made to make it more earthquake-resistant, potentially reducing the need for insurance.”

Pros and cons of earthquake insurance

Like most forms of insurance, earthquake insurance has pros and cons, as you have to balance cost vs. risk.

Benefits of earthquake insurance

There are several potential benefits of earthquake insurance, such as:

  • Financial protection. The main benefit of earthquake insurance is financial protection against earthquake damage that could otherwise exceed your savings. It can give you “the ability to cover costs that otherwise might be unaffordable,” says Barrett.

    In addition to paying for home repairs, earthquake insurance could help cover the replacement cost of personal property, as your belongings can be damaged during these events. It can also help you pay for temporary housing while your home is repaired.

  • Peace of mind. The financial benefits of earthquake insurance also tie into mental/emotional benefits. Earthquake insurance can give you “peace of mind knowing that you're financially protected against a potentially devastating event,” says Barrett.
  • Potential to rebuild quickly. Some people might bank on getting government assistance or charitable support after a devastating earthquake. But even if that happens, it could take a long time to get financial help, which could leave you in a difficult situation. With earthquake insurance, you can rebuild/repair your home faster after filing a claim and return to normal life.

Drawbacks to earthquake insurance

Despite the benefits of earthquake insurance, there are some potential downsides to be aware of, such as:

  • Cost of premiums. Paying monthly or annual premiums for earthquake insurance can add up. The specific costs depend on factors like the cost to rebuild your home, your location, and the level of protection you’re looking for, but it’s not uncommon for earthquake insurance to cost thousands of dollars per year.

    While you might be willing to pay these premiums to protect against earthquake damage, it can still be a downside that there’s a “possibility of paying for coverage that may never be used,” says Barrett.

  • Cost of deductibles. While earthquake insurance can provide financial protection against serious damage, you still have to pay a substantial deductible when making a claim. The California Earthquake Authority (CEA), for example, generally offers earthquake insurance with deductibles between 5%-25%. So, a 10% deductible on a $200,000 coverage limit, for example, is $20,000. That’s a lot of money to pay before your coverage kicks in.
  • Gaps in coverage. Another potential negative to earthquake insurance is “the exclusion of certain damages or property types from coverage,” says Barrett. While you should check the fine print before buying a policy, it’s possible you’d miss something. If an earthquake then causes significant damage, you might not have the coverage you need.

Why is earthquake insurance so expensive?

Earthquake insurance rates can be expensive because insurers must account for the possibility of a natural disaster causing widespread damage, meaning lots of expensive claims must be paid out at once. In contrast, with regular homeowners insurance, claims are often more spread out, so insurers take on less risk of needing to pay out a lot at once.

Earthquake insurance rates also vary significantly based on the risk involved.

For example, rates can range from, say $1-3 per $1,000 in coverage in the Pacific Northwest to a much lower rate of fifty cents per $1,000 for a house on the East Coast. per the Insurance Information Institute.

In other words, the riskier the situation in terms of potential damage, the higher earthquake insurance rates tend to be.

How much does earthquake insurance cost for a mobile home?

The cost of earthquake insurance for a mobile home varies much as it does for other types of properties. Factors such as your mobile home’s insured value, your location, and whether or not you’ve retrofitted your mobile home to brace against earthquake damage affect earthquake insurance rates.

For example, the CEA provides a 21% discount for a mobile home reinforced with a certified earthquake-resistant bracing system.

Without this retrofitting, one example of the cost of earthquake insurance from the CEA for a mobile home in Los Angeles built in 2010 with an insured value of $100,000 and a 10% deductible (among other factors) would cost roughly $250 per year. However, playing around with variables like the amount of personal property coverage and loss of use coverage affects these rates. Insurance costs can also change over time, so you should get a quote to see what rates look like for you now based on your circumstances.

What happens if you don’t have earthquake insurance?

If you don’t have earthquake insurance, you could be left paying for repairs and all other associated costs of an earthquake yourself. The costs can vary significantly depending on the extent of the damage. Some homeowners might be able to afford to replace items that broke in an earthquake, for example, but you might not be able to afford, say, $100,000 in structural repairs.

If an earthquake does cause damage and you don’t have insurance, you might be able to get financial support elsewhere, such as disaster assistance from the Federal Emergency Management Association (FEMA). However, this is not always a reliable approach and you might not get enough assistance to return your home to pre-earthquake condition.

So, if you’re looking for benefits like more financial protection and peace of mind, you’re better off getting earthquake insurance. Still, you should weigh the drawbacks, like the cost of premiums and deductibles, to see if earthquake insurance makes sense for you. Shopping around for quotes can help you see what these costs would look like for your situation.