April 18, 2017
Why Not? With Earthquake Insurance
The Earthquake Problem:
Californians are at risk to a huge potential problem. However, many of us are hiding our collective heads in our shaking soil.
The Golden State may have the sun combined with a healthy economy, but there is a significant danger lying out there for owners of homes. Earthquakes.
Although significant advancements have been made in building and safety codes, many of us still live and own homes that were built over 50 years ago. Homeowners insurance specifically excludes the perils of flood and earthquake, therefore Californians are not covered for by their home insurance, unless they take action.
“Homeowners Insurance specifically excludes the peril of … earthquakes”
The percentage of Californians that own and maintain Earthquake Insurance is pathetically low. I have seen numerous versions of essentially the same number that only ” about 10 percent of Californians purchase earthquake coverage.” That means that 90% of homeowners do not have it. California has been rocked by devastating earthquakes dozens of times in modern history.
According to the National Geographic , of the seven biggest earthquakes in recorded California History
, the least destructive was a 7.3. 7.3 rated earthquakes though have struck three separate times in Landers in 1992, Kern County in 1952, and the Eureka area in 1922. The fabled 1989 Loma Prieta Earthquake
at 6.9 doesn’t even qualify for the list. The much discussed and historically remembered “Great San Francisco Earthquake of 1906” appears 4th on the list with a magnitude 7.8. You read that right, there were three earthquakes in California State History stronger in recorded time than the Great San Francisco Earthquake.
The Earthquake Exclusion:
Home Insurance, also called Homeowners Insurance almost always physical damage from all earth movement. This includes Earthquakes. According the California Department of Insurance
: “Your homeowners insurance does not cover earthquake damage (except fire – California law says that both homeowners renters insurance must cover fire damage that is caused by or follows an earthquake. This means that the fire damage is covered, whether or not you have earthquake insurance).” Basically home insurance does not cover earthquakes. Your foundation, your structure, your driveway, your pool, and all your personal possessions. Technically some personal property items covered under a valuables policy may be covered, but the vast majority of personal items have no coverage.
The Mortgage Question:
Mortgages require homeowners to have Fire Insurance. Mortgages also require those living in high hazard flood zones to buy and maintain flood insurance. However Earthquake Insurance curiously is not required by them. Professionally I cannot explain this. However, I can advise my clients that there is a very real danger in not having earthquake insurance.
In California – Earthquake Insurance is typically available from two options.
The CEA Option:
First you may purchase Earthquake Insurance from the same company that purchases your home insurance. This may likely be written through the CEA. The CEA or California Earthquake Authority is a private state sponsored entity. Typically this is called a companion policy. The CEA has been the market leader for earthquake insurance for some time. It is neither a public company nor a government entity. I would classify it, personally as a Public Private Company. According to the CEA website
they are a “not for profit organization.” They are the largest provider of consumer earthquake insurance in the United States. One important note is that it is not backed up by the State of California. It is an independent entity and this is very important to understand.
Standalone Earthquake Providers:
Your second option for Earthquake Insurance is from one of the few Standalone Earthquake providers. There are two, three, or maybe four options depending on the state in which you reside. These are private insurers that specialize in earthquake protection. There coverage is completely separate from your home insurance. Different Bill, Distinct rules. The companies that write insurance here have different underwriting guidelines. They also differ on coverage forms, so it can pay to speak with a broker who has an understanding of the different policy forms. The standalone market can be appealing for many people for various reasons. Often clients who are seeking either enhanced coverage forms, or more options may find better coverage and or pricing from some of these companies.
The Non Insurance Option:
Believe it or not, this really is an option. The non insurance option is to forgo the insurance and instead spend the money upgrading the structure of your home to protect it from future quakes. However, in order to do this, you will need a plan. Not being a contractor or a structural engineer I cannot give an opinion of this. However, from a cost perspective a Structural Engineer and the Upgrades they are likely to suggest probably will cost decades worth of earthquake insurance costs. Spend $45K now to upgrade or $1,500 a year to insure? Hard to say. (Please do note that those numbers are made up and just a guess, but they attempt to serve a purpose in illustration purpose.)
Why Get Earthquake Insurance:
Besides the fact that most people should at least consider earthquake insurance by getting a simple quote. Why people should get earthquake insurance boils down to the fact that if your home is hit by a direct earthquake it is highly unlikely that you repair costs will be low. In fact its hard to see how most Californians could even afford to repair a home that is shaken off its foundation. Earthquake Insurances is not just used to rebuild a home that has been destroyed. It will also come in handy in a Red Tag situation where the home is not completely destroyed but…is determined by the Authorities that it is unlivable. You have read that right, a government agent could come to your home and tell you that they feel that your house is unsafe even if you feel it is. Of course it all comes down to the exact wording of the policy language in your earthquake policy.
Consider Earthquake Insurance because of your Retirement:
Your home is your nest egg, you hear it all the time from the financial gurus on CNBC. If that is indeed true, doesn’t it make sense to protect that nest egg. Although I am certainly no bankruptcy attorney, I believe that clients that have significantly paid down their mortgage are at INCREASED NEED OF EARTHQUAKE INSURANCE. Saving additional retirement funds in your home equity? What will happen after the next big one? How will you sell a broken structure?
Consider Earthquake Insurance from a Financial Standpoint:
Certainly if you do not need earthquake insurance that must mean that you have the capital to rebuild your home. Right? How will you rebuild if you do not have the savings?
Consider Earthquake Insurance from a Risk Management Point of View:
California has tons of perils, wildfire, earthquakes, floods, tsunamis, but we do not need to worry (generally speaking of course) about Ice Storms, Hail Storms, Tornados, and Hurricanes. With the reduced risk of some of these other perils though we do have to deal with earthquakes. Generally speaking in much of the country the perils of wind and hurricanes often are covered with separate higher deductibles and more exclusions. However they are generally still covered (to a lesser extent) by home insurance. Earthquakes though are (as you have read) totally excluded unless they are added by ways of an endorsement (companion policy) or a special standalone earthquake policy.
Consider Earthquake Insurance for the Peace of Mind:
Won’t you sleep better knowing that your finances and home are protected from the most dangerous peril that has a legitimate chance of destroying much of your community?
Consider Earthquake Insurance by evaluating the costs:
One thing that is rather surprising to me is how many people tell me that Earthquake Insurance is too expensive. I ask them how much it is and they don’t know. How do you know something is expensive if you have never seen the price? Here is a piece of advice: Cal your Insurance Agent and Get a Quote.
The Middle Path for Earthquake Insurance:
There does exist a so called middle path of procuring earthquake insurance and maintaining your home in both the San Francisco and Los Angeles area. It is a two pronged attack.
First up, find out what is costs to marginally increase the structural integrity of your home along with some general safety items. This may or may not involve securing your sheer walls. Replacing old foundation bolts. Certainly adding an automatic gas shut off if your home does not have one.
Second, consider adding a high deductible earthquake policy, either through the CEA or a Standalone provider.
The combination of a high deductible policy and spending money on some of the possible low hanging contractor changes seems to make good sense for many.
About Marindependent Insurance Services LLC:
Marindependent is an independent insurance broker agent based in wonderful Marin County California. We sell and service with a client based focus. California License: 0K10734.
Please read our disclosures here. Speak with a licensed insurance agent in Each and Every situation when considering insurance. Reading about insurance online is not a suitable replacement.