Do I Need Earthquake Insurance?

Earthquake insurance

Living in a shaky state? You should know your risks. California’s famous for its quakes, and its residents buy more earthquake insurance than any other state. But what exactly is earthquake insurance, and is it right for you?

Damage caused by earthquakes is not covered by standard homeowners or renters insurance. But if you have property insurance already, you can add on earthquake insurance as a rider. California state law requires that property insurers offer you that option.

Many insurers offer “mini-policies” for earthquake insurance, that protect the basic structure of your home but don’t cover non-essentials like decks, pools, and patios. These come with a 15% deductible and per-year premiums that can range in the thousands, depending on the cost and risk factors of your home. Unfortunately, even though California earthquake insurers are overseen by a special organization—the privately funded, mostly publicly managed California Earthquake Authority—the policies they offer are still very expensive and their premiums are often raised without warning, leaving you faced with a risky choice.

How do I decide whether it’s worth it?

Experts say it’s not wise to risk losing more than 10% of your liquid assets in the case of earthquake damage. But how do you decide how likely a big loss is? First, consider the location, age, and construction of your home. If you own near a fault line and have an older or brick construction home (wood stands up better to a quake), it’s probably not worth taking the financial risk of going without earthquake insurance. Most earthquake insurance has a 10% or 15% deductible—when you’re considering total destruction of your home, that’s a huge amount of money. But it’s a lot less than 100%, which is what you could be facing if a major disaster hits and you’re not insured.

If you go without earthquake insurance, remember that you can’t count on governmental bodies like FEMA or SBA to help with funds after a disaster. They have stretched finances and strict eligibility rules—and they don’t have the greatest track record of efficiently providing aid, either.

If you rent, you can usually add an earthquake insurance rider to your renters insurance. Your premiums will be much lower, as earthquake insurance will cover damage only to your valuables and not your home in the case of a quake. It will also pay for temporary housing while your home is fixed.

Either way, don’t worry about your car—if you have comprehensive coverage on your car insurance, it will be covered in the case of an earthquake.

Whether or not you decide to purchase earthquake insurance, it’s only one of the ways to minimize your financial risk in the case of an earthquake. If you live in an area prone to earthquakes, think about taking these other steps to keep your home safe from quakes:

  • Have your chimney checked and reinforced, if needed.
  • Make sure your house is bolted to the foundation.
  • Secure your water heater to prevent gas leaks.
  • Put all hazardous and heavy items in low, safety-locked cabinets.

Earthquakes might not happen every day, but that doesn’t mean you should let yourself—and your finances—be caught off-guard in case of a disaster.

 

Earthquake image via Shutterstock