What is Earthquake Insurance & Who Needs It?
Earthquakes are natural phenomena that occur randomly and unpredictably. Stronger quakes can cause devastating widespread destruction. Even less powerful ones can cause significant structural damage to homes and commercial buildings. Earthquakes, ground movement, and other applicable terms are the language insurers use to exclude such events from their standard homeowners and commercial property insurance policies.
Statistics from the USGS and NAIC indicate more than 40% of the US population live in areas at risk of property damage due to an earthquake. Unlike homeowners insurance, earthquake insurance is not a requirement for most lenders. Therefore, it is the homeowner's responsibility with the help of their agent to determine their earthquake risk and needs for insurance.
Earthquake insurance is sold as a separate policy or endorsement to a homeowners policy. Homeowners in California, Oregon, and Washington are prime prospects to purchase earthquake insurance. But the USGS statistics show seismic activity in 42 states, including Missouri and other states near the New Madrid Fault that are among the 16 the USGS considers at high risk.
Importance of California Homeowners to Carry Earthquake Insurance
Earthquakes in California account for two-thirds of all earthquake damage in the US. Due to the high risk of California earthquakes, the not-for-profit California Earthquake Authority (CEA) offers coverage for the house's structure, building code upgrades, and emergency repairs. Individually, it provides coverage for personal property with a lower deductible and additional living expenses without a deductible.
The California Earthquake Authority (CEA)
The California Earthquake Authority (CEA) provides most earthquake insurance in California. CEA offers earthquake policies for homeowners, mobile homeowners, condo unit owners, and renters. The CEA does not sell earthquake insurance directly but sells it as part of earthquake insurance programs from CEA member insurance companies.
Insureds must have an active residential property insurance policy to be eligible for a CEA earthquake policy. CEA policies must be purchased from the same insurance company that provides the standard homeowners policy.
The common question is, "Is earthquake insurance worth it?" The answer is earthquake insurance programs are the only shield California homeowners have from financial ruin if their residence is destroyed or severely damaged by an earthquake. Still, according to NPR, only 13% of California homeowners have earthquake insurance coverage. Without a lender requirement and typical high deductibles, most homeowners decline coverage.
Components of Earthquake Insurance
There are three parts to earthquake insurance policies. As part of this guide to earthquake insurance programs, we detail them for you here.
Dwelling Coverage
Dwelling will help with paying costs to repair or rebuild a home hit by an earthquake. Coverage includes the house, attached structures, some policies cover the house's foundation, and concrete slab floors and structures attached to it. A typical earthquake policy provision is for Other Structures. It covers structures not attached to the dwelling, such as garages, carports, sheds, and pump houses, and more. A 10% - 20% deductible is typical to lower the premium by self-insuring the first-out deductible amount. Dwelling coverage will cover a fixed maximum payout for losses.
Personal Property
Personal property covers the policyholder's possessions in the home. Expensive items such as jewelry and firearms often require a floater policy to cover them in addition to the Personal Property coverage. There is a deductible taken out with dwelling coverage before the policy kicks in to cover losses.
Additional Living Expenses
This coverage is also known as Loss of Use. It helps pay for living expenses temporarily should the homeowners residence become uninhabitable due to an earthquake. Examples include hotel stays, food costs for dining out, laundry, and other losses identified in the policy. Living expenses are typically exempt from deductible amounts.
Earthquake Considerations for Renters, Mobile Homeowners, and Condo Owners
As with homeowners insurance policies, earthquakes are excluded from condo, mobile home, and renter policies. An endorsement or individual earthquake insurance policy is necessary to cover losses due to shaking damage caused by an earthquake. An earthquake policy helps to replace and repair the damage to property inside the unit. Depending on renting or condo ownership, coverage can include appliances, flooring, walls, electronics, furniture, clothing, and more as specified in the policy, as with homeowners earthquake insurance coverage, Additional Living Expenses to pay for temporary housing, and other expenses during the period of replacing or repairing the building.
What Earthquake Insurance Does NOT Cover
Just as a standard homeowners policy has earthquake exclusions, earthquake Some of the most common exclusions in earthquake insurance programs exclude perils covered by other policies. Examples are:
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Fire damage is a loss a homeowners insurance policy covers even from fires that happen due to earthquakes.
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Land damage, whether sinkholes or cracks in the ground, are not covered unless the earthquake policy includes Engineering Costs coverage, in which case it helps to pay some costs to repair the land that makes the home stable.
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Vehicle damage is not included in earthquake insurance. Earthquake-damaged cars may have coverage through an automobile insurance policy.
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Pre-existing damage that occurred before an earthquake is a typical policy exclusion.
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External water damage from flooding, sewer, or drain backup are losses are situations where a flood insurance policy may help repair the damage.
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Brick and Masonry Veneer that covers the home's outside is often an earthquake insurance exclusion.
Earthquake Retrofitting
Retrofitting is a way to lower earthquake insurance costs. To retrofit means to make changes that can reduce damage in the event of an earthquake. Some are inexpensive, while other structural changes are potentially prohibitively expensive. Working with a qualified contractor or engineer is advisable when considering the costly options for retrofitting a home.
Inexpensive retrofit options include:
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Secure bookcases, tall, heavy furniture, such as dressers and televisions.
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Strap and securely brace the water heater to the frame of the structure.
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Install automatic gas shut-off valves.
Expensive retrofits options include structural renovation such as:
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Using seismic bolting to anchor the foundation to the house.
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Using plywood to brace cripple walls in the crawl space between the foundation and the floor.
Earthquake Insurance vs. Traditional Home Insurance
Since lenders usually don't require earthquake insurance, it is an optional endorsement because losses due to shaking damage from earthquakes are excluded from traditional homeowners and renters insurance policies. Typically, earthquake insurance is offered as an addition to a standard homeowners policy.
Earthquake Insurance Costs (and what factors affect the price)
Many factors affect the calculations for the cost of earthquake insurance. The location (including the distance to known faults), type of construction, age and condition of the structure, assessed value, and deductibles are the primary data underwriters use.
The low end for earthquake insurance premium starts at around $800. It ranges to $5,000 per year and often includes high deductibles in the 10% – 20% of coverage. For example, an $800,000 home with a 20% deductible means the homeowners are self-insuring the first $160,000 in losses. Many with a modest income and high equity value choose to take the risk their home will not be a total loss in an earthquake.
Best Earthquake Insurance Programs
If you are seeking the best earthquake insurance programs, you've found the right spot. The ProgramBusiness.com Market Directory provides independent insurance agents access to markets for hard-to-place, unusual risks in the Excess & Surplus Lines and program business space. It's here where you find top-drawer companies such as Arrowhead General Insurance Agency.
Arrowhead's Residential Earthquake insurance program provides California, Oregon, and Washington home and condominium owners with better earthquake insurance options. It seeks to fill the void from companies restricting the type of policies they write while raising premiums and deductibles by providing reasonably priced, high-quality insurance products. The Arrowhead Residential Earthquake Insurance program delivers insurance products with broader coverages, higher limits, and lower deductibles. The rates are competitive depending on the location of the risk and age of the dwelling.