Most people don't consider earthquake insurance unless they live in earthquake-prone areas, and even then many don't purchase policies because of high premium costs and deductibles. Some mistakenly believe they are covered under different policies. It's worth a few minutes of your time to investigate your potential needs for earthquake insurance.
Earthquake insurance is sold through private insurance companies, usually as an endorsement (addition) to your homeowner's policy. (In California, it's coordinated through the California Earthquake Authority). It covers damages to your home and belongings due to earth movement. This may include sinkholes and mudslides as well as earthquakes — check individual policies for the full definition.
Do you need earthquake insurance at all? First, check to see what, if anything, is covered by your homeowners' insurance or other policies. That way, when you assess the costs you'll know what type of policy you need to fill any coverage gaps. Next, as with any insurance, you should assess your risk and compare costs and benefits.
The two main risk considerations are:
- Risk of Damage – If your home is wood-framed and single-story, it has a better chance of withstanding earth tremors than brick or multi-story homes. Installing safety shutoffs for gas and water lines and bracing larger equipment like water heaters can reduce secondary damage. Newly constructed houses tend to fare better than older ones due to improved construction techniques. Your insurance agent can assist you with identifying your risk factors.
- Risk of Occurrence – Even if you don't live in a well-publicized earthquake zone such as California or the New Madrid Fault (which stretches from the Southwestern US into the Midwest) you may be in an area of significant risk. The United States Geological Service (USGS) maintains online seismic hazard maps with explanations of the risks and assumptions. An update is due in early 2014.
Premiums will vary widely, depending on risk factors and deductibles. The potential exists to more than double your homeowner's premium in high-risk areas. A crude range of costs is from $0.50-$2 per $1000 of coverage, with deductibles as low as 2% in low risk areas to a typical 10-15% in high-risk areas. For a $400,000 home in a high-risk area, you could be responsible for the first $40,000-$60,000 of the costs.
Basic policies cover two categories:
- Direct Damage - This includes basic structural damage such as collapsed walls, damaged flooring and countertops, and chimney damage.
- Damage to Contents - Covers broken and damaged furniture, possessions and valuables. Content coverage is usually limited ($5,000 is common), so extremely valuable items such as fine art should be insured separately or incorporated under a different policy.
Things that may be covered with more extensive (and expensive) policies include:
- Landscaping – Structural assets including retaining walls, patios, and detached walkways and sidewalks.
- External Structures – Structures that are not considered a part of the house, such as swimming pools, fences, and outbuildings.
- Construction-Related Costs – Line items associated with preparations to rebuild and repair, like engineering and demolition costs, debris removal, and building code upgrades.
Things that are not covered by earthquake insurance at all include:
Other things to consider are how the deductible is applied (is it cumulative or split into limits on contents and structure), and how much of your living expenses are covered during repair. You should also be aware that uncovered losses don’t apply toward your deductible. For example, if you have $50,000 in uncovered losses to your swimming pool, perimeter fencing or landscaping, these losses will not count toward your deductible.
Earthquake policies – like all insurance – can vary widely, so make sure to read yours with care. As in any insurance decision, don’t be afraid to shop around. You can often get quotes online, and many insurance agents will make a home visit as it gives them a chance to see the property in question.