This article has been reviewed by licensed insurance industry expert Moshe Fishman.
Did you know that more than 80% of U.S. states are susceptible to earthquakes? But even in states such as Washington and California where earthquakes are commonly known to occur, homeowners in these states are vastly uninsured. According to FEMA, despite the fact that California experiences 90% of the country’s earthquakes, only 10% of California residents have earthquake insurance.
Although no one can predict when or where an earthquake will occur, as a homeowner, you can protect your home investment by having residential earthquake insurance. Standard homeowners insurance policies don’t cover earthquake damage.
Earthquake insurance is a separate policy that must be purchased from private earthquake insurance carriers. But how do you decide if purchasing an earthquake insurance policy makes sense for your situation? Let’s examine how earthquake insurance works and if you should consider purchasing a policy.
When earthquakes strike, the damage they cause can be catastrophic. The 1994 Northridge, California earthquake registered 6.7 on the Richter scale. Today, it’s considered the third costliest U.S. natural disaster with an estimated $25 billion in damages. That was certainly a seismic hazard. Experts have warned that the southern part of the San Andreas Faultline in California and the Cascadia Subduction Zone in Washington state are due for “The Big One,” a quake that measures at least a 7.8 magnitude.
It’s not just the west coast that we should be worried about. Experts in the central U.S. have warned that a large area within the New Madrid zone is at high risk for a catastrophic earthquake. According to a U.S. News article, experts believe “there is a 7-10% chance of a magnitude 7.0 or greater earthquake in the next 50 years and a 25-40% chance of a smaller but still potentially devastating magnitude 6.0 quake.”
Catastrophic or not, an earthquake may result in the need for emergency repairs. Those with damaged homes rendered uninhabitable will certainly face additional living expenses.
Unfortunately, the answer is no. Standard home insurance policies do not provide coverage for damage caused by earthquakes. Neither does auto insurance or life insurance. In the event of an earthquake, if you don’t have earthquake insurance, you’ll have to pay upfront and out of pocket for costly repairs. Remember, home insurance coverage does not include earthquake damage.
Earthquake insurance is a policy you must purchase in addition to your regular homeowners insurance. Earthquake insurance provides coverage for your home if your home is damaged due to an earthquake.
If you’re not sure that you live in an area that’s prone to earthquakes, this information is usually disclosed by the seller in a Natural Hazard Report. The U.S. Geological Survey (USGS) also provides a handy list to help you decide if earthquake insurance is a good idea based on certain factors. Of course, you can ask your insurance agent whether your home insurance company offers earthquake insurance for earthquake hazards in your area.
These factors include your proximity to active fault lines, the frequency of earthquakes in your area, whether your home was built to withstand a quake or if it’s been retrofitted, the type of land/soil your home was built on, the value of your home, if your home is on a hill, and more.
Unfortunately, earthquake insurance can be quite expensive. Due to the high cost, most homeowners who know they should have earthquake insurance, don’t necessarily have earthquake insurance. Just like a homeowners insurance policy, the premium will vary depending on your deductible, the amount of insurance coverage you purchase, your zip code, the age of your home, and its proximity to known fault lines.
In a nutshell, annual earthquake insurance premiums can cost as low as $800 and on the high end, about $5K. Deductibles tend to be higher than standard homeowners insurance policies. A deductible is the amount you pay out of pocket before your earthquake insurance coverage kicks in and covers losses. For earthquake insurance, deductibles can vary from 2%-20% of your coverage limit or the replacement value of your home.
However, in states with a higher risk for earthquakes, insurers may require a minimum 10% deductible. For example, let’s say your policy covers the full value of your home: $300,000. With a 20% deductible, you’d need to pay $60,000 out of pocket. If the resulting damage from an earthquake is less than 60K, paying $1000-$2000 per year doesn’t add up for many homeowners.
Premiums will also vary based on location and the type of structure that’s covered. Homeowners with older homes will end up paying more than homeowners with newer homes. Also, because wood-frame homes tend to withstand earthquakes better than brick homes, the premiums for wood-frame homes will be lower.
Like homeowners insurance, earthquake insurance coverage consists of three parts: dwelling coverage, personal property coverage, and loss of use coverage. Dwelling coverage pays for the cost to repair or rebuild your home and extended structures such as a garage or swimming pool. Personal property coverage pays for the replacement of your personal belongings such as furniture, clothing, appliances, etc. Loss of coverage pays for your living expenses if you need to live elsewhere if your home is rendered uninhabitable or while it’s being repaired.
Earthquake insurance will not cover damage caused by ensuing floods, sinkholes, erosion, and fires. Damage to vehicles also isn’t covered. Let’s look more closely at these common exclusions.
Fire - If an earthquake causes a fire, your standard homeowners insurance policy would cover the damage. This is because earthquake insurance doesn’t cover anything that your standard homeowners policy covers. Therefore, earthquake insurance doesn’t cover fire damage caused by an earthquake.
Land - If an earthquake causes a sinkhole, erosion, or landslide, this damage to your land isn’t covered by earthquake insurance. This is because landslides are caused by water accumulation or erosion that make the land unstable, and earthquakes occur because of seismic activity.
Earthquake insurance doesn’t cover water damage that occurs outside your home. If your home suffers water damage from a backed-up drain, a tsunami, or a flood from a nearby lake or river, earthquake insurance will not pay for the damage. For these situations, you’d need a flood insurance policy. Sudden water damage that occurs inside your home–for example, from a burst pipe–may be covered by your standard homeowners insurance policy.
What Earthquake insurance covers:
What Earthquake insurance doesn't cover:
According to ready.gov, being prepared in case of an earthquake before it happens is the best thing you can do. Their earthquake webpages recommend having a plan for before, during, and after an earthquake that will protect you, your family, and your home.
How to prepare:
When it comes to insurance, earthquake insurance doesn't necessarily cover all the damage to your home caused by the earthquake. Unlike flood insurance, which is mandatory for people who live in certain flood-prone areas, earthquake insurance isn’t a requirement even for people who live in areas prone to quakes. It’s up to the individual homeowner to determine if earthquake insurance is affordable or necessary.