Earthquakes can strike anywhere and at any time. You could end up paying out of your own pocket if you don’t have earthquake insurance. Standard homeowner’s insurance typically does not cover earthquake losses, with many insurance companies requiring an additional policy endorsement or rider for earthquake damage.
California was hit by two earthquakes in 2019, which caused nearly $40 million worth of damage to its residents. The 2018 Anchorage earthquake in Alaska caused another expensive disaster. More than 10500 insurance claims were filed, with $130 million of damages. This is a large sum of money. These are the basics of earthquake insurance.
What is earthquake insurance?
The first thing you should know is that your standard homeowners insurance policy doesn’t cover earthquakes. It can only cover fire damage that often follows earthquakes. You will need to add an endorsement or rider on your policy in order to cover damage from seismic activity.
This endorsement covers direct damage caused by specific seismic events. These could include a volcano eruption or an earthquake. A policy will define a time frame, typically 72 hours, that defines a single event. The endorsement will cover damage to your home and possibly, depending on your policy’s specifics, other structures, such as a detached garage or pool. Personal property will also be covered up to the limit that you set when you purchased the policy.
Home insurance coverage usually covers earthquake damage repairs. Earthquake coverage also includes loss of use coverage for additional housing expenses while your home is being repaired.
As we said, fire damage will be covered by your basic homeowners policy, but water damage will only be covered if you also have flood insurance, even if an earthquake causes it. Earthquake policies won’t cover damage to your land, except for where it supports your house, or your vehicle, which should be covered if you have comprehensive car insurance.
Do I need earthquake insurance
Lenders don’t usually require earthquake insurance the same way they do homeowners insurance. However, it doesn’t mean that you shouldn’t have it. According to the National Association of Insurance Commissioners (NAIC), California are known to have a high active risk for earthquakes. Even states such as Texas and Oklahoma see more activity from fracking, so risk levels are on the rise in those areas.
Learn about the rates and deductibles
Your insurance company uses specific data about your home and location to determine the rate you pay for earthquake coverage. This information is also used for homeowners policies. These rate factors are cited by the NAIC:
- The proximity of your home to a seismic zone
- The age of your home
- Insurance will cost more depending on the type of foundation or construction (masonry is more expensive).
- You can choose the deductible that you want
- How much it will cost to rebuild your house
- Additional coverage, such as secondary structures, is possible
Just as with your standard policy, your coverage should insure the total rebuild cost of your home, also known as your dwelling coverage limit or replacement cost coverage. This coverage is not the same as your home’s appraisal or sale price. If your home needs to be completely rebuilt, it will include the cost of labor and materials.
Your premium will be most affected by the risk of an earthquake. For instance, a resident of New Madrid County, Missouri, situated right on a major fault, would pay 328% more than a resident of Jackson County, Missouri — where Kansas City is located, far from the New Madrid fault line.
The deductible plays an important role in your rate. This is more than with a traditional homeowners insurance policy. A standard policy will have a predetermined amount of deductible. This deductible can be as low as $250 or as high at several thousand dollars. But most earthquake insurance deductibles are indicated as a percentage of the rebuild cost, usually between 10% and 15% of the total rebuild value of the home, so on a $300,000 home, you might face a deductible as high as $45,000.
You could be held responsible for all costs if your home is not damaged enough to warrant a complete rebuild. And that’s just on the home itself — you also need to consider your personal property and protection on any other structures.
What is the cost of earthquake insurance?
The cost of earthquake insurance varies depending on where you live and what other factors are involved. You might expect that your premium will be higher if you live near a major fault or fracking area. You may pay $100 to $300 annually for states that don’t have a lot of seismic activity. Premiums for states with higher frequency tremblers could be as high as four figures.
The California Earthquake Authority can help you calculate the cost of earthquake insurance if you live in California. California is prone to earthquakes. For example, a Sacramento two-story home selling for $300,000 could cost $159 per year for earthquake insurance. There is a 15% deductible. For the same coverage, $1320 would be required for a similar-priced property in Brawley in the more active south.
Is earthquake insurance worthwhile?
Some people do not need earthquake insurance. Some areas in the United States are almost completely safe from an earthquake or volcanic eruption. Even a small annual premium may not be worthwhile when you consider the limits of your coverage, and the high deductible.
Many Americans live in high or moderate risk zones. This is becoming more prevalent as fracking becomes more widespread in Oklahoma. It takes just one major event to cause serious or even catastrophic damage in these areas. Think about how much it would cost to replace your home in case of an earthquake. Is it possible to afford it? Could you afford to cover the cost of temporary housing and any potential damage to your personal property? Your premiums might be higher if you live near high-risk areas, but they will not be more than your replacement costs.
You can weigh the costs of earthquake insurance and get a complete risk assessment to determine if it is worth it.
Questions frequently asked
Is homeowners insurance able to cover earthquake damage?
It will not cover fire damage caused by an earthquake. You will need to add a separate rider to your homeowners policy in order for you to have coverage in the event of seismic activity.
Why is earthquake deductible so expensive?
Because earthquake deductibles can be very high, the potential for catastrophic damage makes them more risky for insurers. In order to cover costs, they must have high deductibles.
Are you unable to live near a fault line and do you still need earthquake insurance?
It is worth considering. In areas where hydraulic fracturing is performed (fracking), earthquakes are possible. This has led to an increase in earthquakes in places where they were previously rare.
Is my earthquake insurance able to cover flooding?
No. Flood insurance is recommended for those who live in flood zones or fear flooding from a quake. This is available through most insurance companies or FEMA’s National Flood Insurance Program.