Do I Need Earthquake Insurance?
Your homeowner insurance does not include or provide Earthquake Insurance and, in fact, specifically excludes it. If your home is damaged by an earthquake, without earthquake insurance it will not be repaired unless you pay for it yourself or get some kind of government emergency loan (from the same government, state or federal, that has long ago run out of money – good luck.)
As with any insurance, if you never use it, you didn’t need it. If you have it and you need it, you’re a genius and a hero. If you need it and don’t have it, you kick yourself while at the same time forgetting about all the good reasons you had for not buying the insurance when you had the chance.
This is all crystal ball stuff. How can you determine the future and whether you will need earthquake insurance or not? You can’t. So let’s make it simple: If you can afford it, get it and if you can’t, don’t. If you don’t have earthquake insurance and there is an earthquake and your home is damaged, there is no coverage, period. Without earthquake insurance, earthquake damage will not be covered. No insurance = No Coverage. You would be surprised how many of the “Northridge Earthquake Victims” had no earthquake coverage to begin with. Fortunately, at that time, California and the United States were both much more wealthy than they are now and were able to bail people out. Don’t look for such generosity to happen again.
Earthquake insurance is different than your home insurance. It has a limited menu of coverage (get out your homeowner insurance declarations page and look at your coverage) and most earthquake policies are “a la carte”, requiring you buy each specific type of coverage that is otherwise automatically included in your homeowner policy, and even then it will not exactly parallel the coverage that your homeowner insurance provides. For example, most earthquake policies do not cover damage to pools, walkways, sidewalks, driveways, often called “hardscape.” Most earthquake policies have limits on Loss of Use coverage, personal contents coverage and may have no coverage for Other Structures (un-attached structures or separate structures) at all.
California Earthquake Insurance Policy deductibles are very different
Your homeowner insurance deductible is a fixed figure, usually $250 or $500 or $1,000 per occurrence. If you have a $500 deductible and then have a $5,000 claim, you will get paid $4,500 = simple. Great. With EQ insurance your deductible is a percentage of your house’s reconstruction cost (look at your homeowner declarations page and see Coverage A, Dwelling Replacement). So let’s say that your Coverage A figure is $300,000. That would be the estimated cost to rebuild your house. With EQ insurance, you may have a 10% deductible, 15% deductible or even 20% deductible. The average is the 15%. On your EQ policy, then, the deductible would be $45,000. You can get up off the floor now. Yes, that’s true. You pay the first $45,000 of the cost to repair, replace or rebuild your house.
Generally your earthquake insurance costs about the same as your homeowner policy, maybe a little less, often more, depending on the age of your house, its location and the amount of coverage you buy and the deductible, and sometimes a lot more than your home policy. On the other hand it’s a lot cheaper than paying for the repairs to your earthquake damaged house out-of-pocket. Do you have a spare $300,000 lying around? And that’s just to rebuild your house. What about your personal possessions? What about all the money you spend for room and board while your home is being repaired (6 months or a year or more – that’s a lot of dough – the coverage is called Loss of Use). The information needed is mostly stuff you would know from your homeowner insurance except for one thing: Is your house EQ retrofitted? This includes being bolted to the foundation up to current standards. In order to get a quote it isn’t necessary to know this, but if your house is sitting on a raised foundation it will be necessary to get a definitive answer to the retrofit question from a structural engineer or foundation contractor prior to actually applying for earthquake policy.
What else does the California Earthquake Insurance policy do for me besides fix my house?
It depends on the policy you get. The Basic Earthquake Policy, which we used to call the Mini EQ Policy, covers the dwelling plus a very little of your personal contents ($5,000) and even less for Loss of Use ($1,500). Loss of Use is the coverage that pays to supplement your normal budget for room and board while you are waiting for your home to be repaired. It can take a long time and rack up a heck of a bill for food and lodging. So, for the Mini Policy, the answer to the question above is: “Not much besides the structure.”
There are other policies that offer better coverage including higher limits of Contents, Loss of Use, and even some that offer Other Structures coverage and Attached Structures coverage including “hardscape” (the attached patios, decks, pools, spas, etc. usually made of concrete.)
Loss of Use is a coverage that supplements your normal budget for housing and food while you are turned out of your home. A big earthquake like Northridge shows how important the Loss of Use coverage is. It took a long time for the area to stabilize and get re-construction going. During that time, the folks who were out of their homes needed somewhere to go and, often, a way to pay for it. Construction was slow, inspections were slow, everything was slow, and yet, there you are with your family, paying for habitation somewhere and eating out. Extremely expensive.
The Long and Short of It Is…
- We live in California, on top of numerous geological faults and we have earthquakes. They happen.
- Earthquake Insurance exists and it can be purchased but it isn’t cheap.
- You can shop for the best price, like anything else, only there aren’t many choices.
- You can either afford it or you can’t. Either way, don’t worry about it.
- Some EQ specialists recommend that you put your money into EQ retrofitting your house, first, before buying EQ insurance.
Do something rather than nothing regarding your home and earthquakes, whether it is insurance, retrofitting or preparedness. If you need help with the insurance part, give me a call.
Here’s an excellent resource for a summary of earthquake hazards and retrofitting:
Get an Earthquake Insurance Quote