Earthquake Insurance: Do You Need It? – Forbes Advisor

October 24, 2022

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Nearly half of all Americans are at risk of harm from an earthquake, according to the latest report from the US Geological Survey. the report says that about 143 million Americans live and work in areas with at least some potential for tremors that could cause damage to structures. about 57 million people are in areas with a moderate probability of tremors and 28 million people are in areas that have a high potential for earthquake damage.

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Unfortunately, earthquake damage is a common exclusion for homeowners, condo and renters insurance policies. If you want coverage for earthquake-related problems, you can purchase an earthquake insurance policy.

Reading: How does earthquake insurance deductible work

But before you buy a policy, be sure to read it carefully. there are usually many exclusions and limits on coverage, which should give you pause.

what is earthquake insurance?

earthquake insurance provides coverage for your home and belongings if they are damaged or destroyed in an earthquake.

A standard homeowners insurance or renters insurance policy does not cover earthquake damage. If your home is damaged in an earthquake, you’ll have to pay for the repairs yourself if you don’t have earthquake insurance.

An exception is if an earthquake causes a fire that burns down your home. In that case, your home insurance policy should cover fire-related damage, since the policy covers fires. which usually also includes additional living expense coverage that will reimburse you for living elsewhere while your home is being repaired.

A July 2020 Insurance Information Institute survey found that 23% of covered homeowners also have earthquake insurance. that was a 15% increase just two years earlier. not surprisingly, homeowners in the west have the highest percentage of earthquake policies.

percentage of homeowners with earthquake insurance, by region

what does earthquake insurance cover?

earthquake insurance generally covers the following:

dwelling. This includes your home and the structures attached to it. this could include concrete slab floors inside the home, the foundation, and other structures attached to the home.
Other structures. This covers structures that are not attached to the dwelling. this could include garages, carports, storage buildings, pump houses, and other structures.
personal property. This includes furniture, clothing, appliances, dishes, pots and pans, jewelry, musical instruments, rugs, and other personal items. Some items have “special limits,” meaning the policy will only pay up to a specific amount. for example, we reviewed a policy that had a special limit of $500 on computers and another $500 on tools.
Additional Living Expenses. Also known as “loss of use,” this coverage helps pay for expenses like room, board, and laundry if you are unable to live in your home due to earthquake damage covered by the policy.

what does earthquake insurance not cover?

The following items are commonly excluded in earthquake insurance policies:

water supply systems, such as wells, irrigation systems, sprinkler systems, and water reclamation systems
underground structures or equipment outside the home’s foundation wall, such as pipes, cables, flues, and underground drains
bulkheads, piers, jetties and retaining walls
exterior masonry cladding, walls and fences
antennas and satellite dishes
personal property located outside the home
awnings or other patio covers
landscape, trees, shrubs, grass or plants
data (stored electronically or in physical records, such as paper or ledgers)
trailers designed for use with a motor vehicle
animals, birds or fish
decorative items or works of art, such as murals, sculptures, fountains, aquariums, stained glass or leaded windows, mirrors, and chandeliers
swimming pools, spas and hot tubs
motor vehicles
planes
jet ski
owned by tenants, tenants, or guests not related to you
any business property or property rented to others
personal property in any other dwelling that you own, rent or occupy

In addition, a California Earthquake Authority policy will cover structures such as bulkheads, piers, retaining walls, and masonry fences. however, these types of structures are only covered when they are an integral part of your home’s stability.

Please note that you may be able to purchase a policy that covers commonly excluded items. For example, we reviewed an American Modern Home Insurance earthquake insurance policy that included awnings, drywall, masonry chimneys, exterior water supply systems, and underground structures outside the home’s foundation.

If these types of items are important to you, it’s a good idea to compare a few different policies to get the coverage you want.

problems not covered by earthquake insurance

Some earthquake insurance policies will not cover certain types of problems that occur just before, during, or after an earthquake. this could include:

fire (however, fire damage may be covered by your homeowners insurance)
earth movement from a non-seismic event, such as subsidence, uplift, expansion or contraction of the earth due to increase or decrease in soil moisture content
water damage, such as flooding, tidal waves, or the overflow of a body of water
water damage backing up through sewers or drains
water below the ground surface, including seepage or flow from any part of a building or other structure, sidewalk, driveway, or swimming pool
negligence (meaning you failed to take reasonable steps to protect your property)
nuclear action, including radiation or the discharge of a nuclear weapon, even if accidental
war (whether declared or not), civil war, insurrection, rebellion or revolution
wear
smog, rust, corrosion, mold, wet or dry rot, sedimentation and animals
defect, weakness, inadequacy, failure or unsoundness, including planning, zoning, development, design, workmanship, construction, materials and maintenance
compliance to repair or demolish a building or structure to meet local building codes
intentional acts
explosion
discharge, release or escape of pollutants
theft, larceny, looting, vandalism, and malicious mischief
damage caused by motor vehicles
falling objects

earthquake insurance in california

If you live in California, state law requires insurance companies to offer earthquake insurance when you purchase homeowners insurance. your insurance company should offer you earthquake insurance every two years.

The offer must be in writing and must tell you the policy limits, deductible and premium. you have 30 days to accept the offer. you are not required to take out the policy. if you don’t respond, you’re rejecting the offer.

The California Earthquake Authority (CEA) provides the majority of residential earthquake insurance policies in California (about 65%). You cannot buy a policy directly from the cea, but you can buy it from insurance companies that are members of the cea.

You must have a residential property insurance policy to purchase a cea policy. In addition, you must purchase your cea policy from the same insurance company that has your home insurance policy.

Even if you don’t buy an earthquake policy in California, homeowners and renters insurance is required by law to cover fire damage that follows an earthquake.

here is an insurance premium calculator from the california earthquake authority.

how much does earthquake insurance cost?

The average cost of earthquake insurance is about $850 per year, according to AAA. the insurer’s lemonade estimates a slightly lower average cost of $800 per year.

Earthquake insurance rates depend on several factors, including:

The location of the home. If your home is in an earthquake-prone area, you can expect to pay more. homeowners in a low-risk area can pay $300 a year, while those with an older home in a high-risk area can pay up to $2,000 a year, according to Hippo Insurer.
age of home. Older homes can result in higher earthquake insurance costs.
cost to rebuild the home. this includes the replacement cost to rebuild the home using materials of a similar type and quality.
Your deductible. A deductible is what you will pay out of pocket if you file a claim. earthquake insurance deductibles can range from 10% to 25% of the homeowners policy limit. if you choose a higher deductible, you will pay less premium. but keep in mind that 25% of a $100,000 policy limit means you’ll pay the first $25,000 if you file a claim.

how much does earthquake insurance cost in california?

The average cost of earthquake insurance in California is $738 a year, according to the California Department of Insurance. the exact cost depends on the amount of coverage, deductible, home risk, and other factors.

The California Earthquake Authority (CEA), which provides the majority of earthquake policies in the Golden State, offers earthquake insurance discounts for earthquake-adapted homes. discounts range from 10% to 25% depending on the age of the home and the type of foundation.

A seismic retrofit is one way to harden your home against earthquakes, even if you don’t have an earthquake insurance policy. the cea added that remodeling a house can take a few weeks and makes houses safer. A remodel does not guarantee that your home will not be damaged in an earthquake, but it does make it more resistant, according to the cea.

The cea also has an earthquake insurance premium calculator that you can use to get an estimate for residential earthquake insurance.

Do I need earthquake insurance?

Earthquake damage is not covered by a standard homeowners, renters, or condominium insurance policy. Although earthquake insurance is not usually required by a mortgage lender or HOA, it is worth considering if you live in an earthquake-prone area.

the modified mercalli intensity scale is used to determine the severity of an earthquake. These 10 states have the “strongest shaking potential,” according to the US Geological Survey:

california
washington
utah
tennessee
oregon
south carolina
snowfall
arkansas
missouri
illinois

Even if you don’t live in one of these states, you shouldn’t rule out the possibility of an earthquake. can occur in all 50 states.

Here are some helpful tips on how to prepare for an earthquake from the California Earthquake Authority.

How much earthquake insurance do I need?

You need enough earthquake insurance coverage to rebuild your home if it is destroyed, similar to needing enough homeowners insurance if your home is lost in a fire or other problem.

Your earthquake insurance company will set limits on coverage for your dwelling (house), similar to what you have in a homeowners insurance policy.

The home portion provides funds to repair or rebuild your home if it is damaged or destroyed, so make sure you have enough coverage. your insurance company will help you determine how much homeowners coverage you need.

You’ll also want to make sure your earthquake insurance policy has enough personal property coverage and coverage for additional living expenses.

questions to ask before buying earthquake insurance

what are the limits of the earthquake insurance policy?

The maximum amount of coverage you can buy will depend on your insurance company, but be aware of coverage limits. For example, if you buy an earthquake policy with only $100,000 of homeowners coverage, that might not be enough to rebuild your home if it were destroyed.

how much is the deductible for earthquake insurance?

earthquake insurance policies can have high deductibles (the amount of money you’ll pay out of pocket for repairs if you file a claim). the deductible can range from 10% to 25% of the homeowners policy limit. If you have a homeowners policy limit of $100,000, you could be responsible for paying between $10,000 and $25,000 if you file a claim.

what are the “special limits” of earthquake insurance?

earthquake insurance policies are often filled with special limits on how much the insurer will pay to replace certain items or repair structures. for example, we found a policy that only allowed $500 to replace a computer and another policy that pays only up to $1,000 for removal of felled trees (and no more than $500 to remove a tree), regardless of how many trees fell. Some policies won’t cover damage to a pool or the deck that surrounds it.

what should I do after an earthquake?

If there has been an earthquake in your area, here are several steps you can take:

Get emergency instructions from a reliable source (radio, television, internet).
Expect aftershocks, which can occur in the hours, weeks, days, and even months after an earthquake.
check utility lines and appliances for damage. if you smell gas, open the windows and turn off the main gas valve. If your electrical power goes on and off, turn off your home circuit breaker to prevent a power surge.
Check your chimney for cracks or other damage.
If your home was damaged, take steps to prevent further damage (such as boarding up windows to prevent break-ins).
Call your insurance agent to inquire about coverage and file a claim.
look up your home inventory (if you have one).
If you need to live somewhere else because of the damage, keep receipts for living expenses like lodging and restaurant meals.
Hire a public insurance adjuster to help you with large claims, including managing paperwork and meeting deadlines.