Is Earthquake Insurance Worth the Cost?

I am not much of a fan of “could it happen here” stories, but the earthquake in Haiti does remind us that much of the United States, in fact much of the world, lives along fault zones. In the last 110 years, quakes have shaken the ground in 39 states. Ninety percent of Americans live in potential quake zones.

Geologists now believe that major quakes anywhere could weaken faults worldwide.

So, should you buy earthquake insurance? There is usually a surge of interest after big quakes.

Here is what you need to know:

  • Homeowners insurance typically does not cover earthquake damage. It is sort of like flood damage; if you want coverage, you need special insurance.
  • Depending on where you live, quake insurance is fairly inexpensive. Wood homes, which tend to absorb shock more than brick or stucco, might be less costly to insure against quakes. You often can get discounts if you strap down your water heater, meet new building codes for quake safety and agree to a high deductible. One-story homes are less costly to insure than multiple-story housing.
  • United Policyholders says, “Could you afford to pay out of pocket for repairs/rebuilding? What would you do if you couldn’t? Quake damage often requires engineering fixes which can be very expensive -– typically $50k and up. Can you afford a policy with a 10 percent instead of a 15 percent deductible and if so -– how much would the damage have to be before coverage would kick in?”

  • Insure.com says, “Even in California, where earthquake fears are a daily fact of life, only about 12 percent of homeowners have earthquake insurance, according to the California Earthquake Authority (CEA), down from 30 percent in 1996 when the state legislature created the CEA. Each year, more homeowners get rid of earthquake coverage than buy it because, according to consumer groups, they believe the policies cost too much and cover too little.”

Resources

California has its own strategic plan for earthquakes.

United Policyholders, a nonprofit group that does public education on insurance issues (and is funded by grants and foundations, and is largely run by volunteers) provides the following links:

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  • Anonymous

    If you decide to buy earthquake insurance, look at the actual rules of acceptance for being a policy holder. Many earthquake insurers do not let the consumer know their rules of acceptance and the policy holder will be very surprised when they find out they have paid thousands of dollars over the years on a policy for which they do not qualify. How could this happen? I only know that I found out by accident because I was looking for what my policy actually covered (my broker never sent me the ‘full disclosure’, only a very general one). As I was searching the Internet concerning my earthquake insurance company I found a page very deep (several links down if you take the time) that revealed the actual rules of acceptance for being a policy holder. The one rule that really shocked me and is held by ALL earthquake insurance companies is the rule that “if any part of your home is at a minimum of 50 feet away from a slope no greater that 26 degrees, your home is not insurable.” My broker found out HE was not insurable under this rule; a rule he did not know about himself. He began to research and found out all the earthquake companies in California have the same rule.

    Now ask yourself, how many homeowners live on a lot that is cut in a step style, that is, the lot on one side of you is raised up a few feet, the lot on the other side is below you a few feet. Many tract homes are built on lots like this. The ‘slope’ in these cases are usually 90 degrees with a wall or fence separating the properties. Even a less severe slope will not meet the 26 degree rule. Furthermore, most homes are not built 50 feet from their neighbors and if the lots were cut in a step style those homeowners are not insurable. What a surprise if an earthquake hits California.

    Let’s say you don’t have the step-style lot but you must be sure your front yard and back yard do not have a downward slope of over 26 degrees and that you are at minimum 50 feet away from any downward slope greater than 26 degrees. I have a nice sized back yard that is flat but it is NOT 50 feet wide and the house behind me is at the bottom of a slope much greater than 26 degrees. All the houses on my street are this way and and this style of lot is common all around the area in which I live. These are lots that are like the step style, except the step is street-by-street, one street being lower than the next. So if your backyard neighbor is less than 50 feet from you and their is a downward slope greater than 26 degrees you are not insurable.

    Generally if your house is not built to code in any way you are disqualified even if you are paying on a policy (check out their acceptance rules). Pay special attention to your foundation type and its condition, fireplace and chimneys, walls and main supports of your home. What I found amazing is that brokers and insurance sales people are so determined to get customers that they don’t study the policy rules themselves. You may call your broker after you read this and he/she may say that person who wrote that is wrong. My broker and insurance company did that to me and then they all finally read their own rules, found out I was right, and promptly disqualified me and reimbursed me for my many years on the policy. After an earthquake, I expect many people will be told that they should have known the rules of acceptance and informed the insurance company BUT it is insurance company’s responsibility to inform the consumer if they are qualifed or not. Some of you may never have thought you had to be qualified because no one checked your house or property when you were sold your policy. By law, they must check your property ON SITE before selling you a policy. Building contractors ‘opinions’ and aerial photographs do not qualify. (They actually used the two latter excuses in my case. Ask yourself does a aerial photograph show slope. I saw mine and the neighborhood from that height looked flat. )

    I live within miles of the San Andreas Fault and earthquake specialists have been saying that there is a probability of 90% that the fault will cause an earthquake to the magnitude of 8.0 in only a few years. Such a quake would overwhelm the earthquake insurance companies, but these rules of acceptance that seem to never get to the consumer would be their sure ticket out of paying for all those policies. As my own company said to me when I informed them of the slope rule ‘deep’ within their own website: “that’s your responsibility for not telling us in the first place”. Trust me I did not take that lying down and they agreed to pay me all the money I spent for the years I had their insurance and they are one of the largest companies in the nation. I am now uninsured and not happy about the fact.

    In closing, I suggest you save your money for house repairs. All companies have a deductible of over 10%. That’s $20,000 on a $200,000 house. In California, that is very low price for a house. Even in this economy, the average house in California is between $300,000 and $500,000+. How many of you can just shell out $20,000 to $50,000 before your policy kicks in? I have come to the conclusion that Californians have to act and vote in some sort of protection from these earthquake policies that have loopholes, poor follow through, and impossible deductibles. We need real earthquake insurance or California, the 7th most productive economy in the world, will likely take an economic hit that will cripple us for decades.