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What Is Earthquake Insurance?

Earthquake insurance is a sort of catastrophe insurance that protects policyholders from earthquake damage that is unforeseeable. This form of coverage can be used to replace your home, replace or repair other structures on your land (such as fences, garages, and other structures), and cover personal property that is lost or destroyed as a result of an earthquake or subsequent aftershocks.

Even though many homeowners believe their standard homes insurance policy will cover earthquakes, this is not the case. Earthquake insurance is usually obtained as an add-on policy to a standard homes or renters insurance policy, but you may also be able to purchase a separate earthquake insurance policy. 

Who Should Get Earthquake Insurance?

People who live along the Pacific Coast, or in states like California, Washington, Alaska, and Oregon, are the most likely to acquire earthquake insurance. However, according to the Insurance Information Institute (III), people in 42 different states are at risk of earthquake damage. 1

According to the Insurance Information Institute (III), Alaska, Arkansas, California, Hawaii, Idaho, Illinois, Kentucky, Missouri, Montana, Nevada, Oregon, South Carolina, Tennessee, Utah, Washington, and Wyoming are among the states most vulnerable to earthquakes. They also point out that some states, such as Florida, Iowa, Kansas, Louisiana, Michigan, Minnesota, North Dakota, and Wisconsin, face little to no risk. 

Is the California Earthquake Authority Good Insurance?

Because of the elevated risk seen along the San Andreas Fault and the numerous costly earthquake disasters that have occurred in the state over the last 50 years, many earthquake insurance clients are from California. The California Earthquake Authority (CEA) was established in 1996 in response to the sheer quantity of earthquakes in the state and the possibility for the most costly quakes in the future.

Since then, the CEA has grown to become the nation's largest supplier of household earthquake insurance, accounting for two-thirds of all coverage in California. It's worth noting that several of the earthquake insurance companies on this list work with the CEA to provide earthquake coverage in California. Fortunately, the CEA's earthquake insurance is dependable when you need it. The CEA is financially sound, according to the Insurance Information Institute (III), with over $18 billion set aside to pay claims.

Why You Should Get Earthquake Insurance? 

Although Americans typically associate earthquakes with California, they can happen anywhere, even far from known fault lines. Most earthquakes cause little or no damage, but a powerful quake can cause widespread destruction. A standard homeowners insurance policy may not cover earthquake damage. Purchasing a separate earthquake insurance policy is an option. 

What Earthquake Insurance Covers

If your home is damaged or destroyed by an earthquake, an earthquake insurance policy can pay to have it repaired or rebuilt. Some insurance companies include building code upgrade coverage or offer it as an add-on. If you have that type of coverage and your older home gets damaged or destroyed by an earthquake, your insurance company will pay to have it repaired or rebuilt so it complies with current building codes.

Earthquake insurance will cover personal property that gets damaged or destroyed. If an earthquake renders your house uninhabitable, loss of use coverage will pay for additional living expenses while your home is being repaired or rebuilt. If you can’t live in your house but you still have to pay your mortgage, loss of use coverage can prevent you from being overwhelmed financially.

An earthquake insurance policy won’t necessarily cover all damage. An earthquake can cause other problems, such as fires and flooding. Depending on the circumstances, your homeowners or flood insurance policy might pay for repairs or replacement. 

What Earthquake Insurance Does Not Cover

All insurance policies have exclusions. These are the things the policy does not cover. Read your policy to learn about your exclusions.

Common Earthquake Insurance Exclusions

Common exclusions in earthquake insurance policies include:

• Fire

Earthquake insurance usually does not cover anything that your homeowners policy already covers. For example, your homeowners policy covers fire damage, even if an earthquake causes the fire. Therefore, your earthquake policy does not cover fire damage.

• Land

Usually, earthquake insurance does not cover damage to your land, such as sinkholes from erosion or other hidden openings under your land. You may be able to buy limited additional coverage to restore or stabilize land.

• Vehicles

Earthquake insurance does not cover damage to your vehicles. Check your auto insurance policy to find out if it covers that damage.

• Flood

Earthquake insurance does not cover water damage from outside your home, such as sewer or drain back-up, flood, or tsunami. For example, if you live near a lake that floods your home after an earthquake, earthquake insurance will not pay to repair the damage. A flood insurance policy will cover you.

Costs for Earthquake Insurance

Premiums for earthquake insurance vary widely, depending on location and how often earthquakes occur there. Rates may be much lower in low-risk areas than in places that experience frequent earthquakes. If you’re concerned about high premiums, you can choose a policy with a higher deductible.

Other Factors to Consider

Think about where your house is located, how often earthquakes happen there, how serious they generally are, the materials used to build your house, whether it was constructed to withstand an earthquake, the amount of rainfall your area typically gets, and the type of soil on your property. Consider the value of your home and its contents. Ask yourself if you would be able to pay to have your house rebuilt from scratch and replace all your belongings if you lost everything in an earthquake and didn’t have insurance. 

Deductibles for earthquake insurance policies are usually a percentage of the total amount of coverage. If, for example, your house gets damaged or destroyed by an earthquake and you have a 20% deductible, you will have to pay 20% of your coverage amount before your policy will cover any of the bills. If the damage is minor and the cost of repairs is less than your deductible, your insurance will pay nothing at all. 

Weigh the Pros and Cons

Earthquake insurance can protect you from financial ruin if an earthquake destroys your home. If your area never experiences an earthquake, or if an earthquake occurs but causes minimal damage to your house, you may pay a lot of money in premiums but never use your policy. 

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Source: RISMedia