For most people, their home is their largest single investment. To protect that investment, most individuals purchase homeowner’s insurance to cover the cost of replacing personal possessions and rebuilding their home in the event of a disaster. However, a homeowner’s insurance policy does not include coverage for certain types of damage that occurs when a natural disaster strikes.
If you live in an area of the country where earthquakes are common, you may want to purchase earthquake insurance. Earthquake insurance, like flood insurance, is not included in a standard homeowner’s insurance policy. It is available either as an endorsement on your homeowner’s policy or as a separate standalone policy.
Although California is most often thought of as earthquake country, thirty-nine states have had an earthquake in the last 100 years, and about 90% of the population of the United States live in areas that have had some earthquake activity in the past. The U.S. Geologic Survey monitors faults all over the country, and assigns probabilities of an earthquake occurring along each of them. The San Andreas Fault in California and the New Madrid fault in the center of the United States have the highest probabilities, along with fault lines that exist on the eastern seaboard of the country. Earthquake insurance is available in all 50 states to protect homeowners everywhere from this disaster.
Earthquake insurance is classified as catastrophic insurance, which is protection from a devastating financial loss. The policies have very high deductibles compared to other types of insurance, and the deductible amount is based on the home’s value. Most companies require a deductible of two to twenty-five percent. For example, for a home valued at $100,000, the deductible would range from $2,000 to $25,000. There is usually an additional deductible for replacing the home’s contents and personal property.
The high deductible on earthquake insurance helps keep the premium down. Other factors are also considered when determining the premium for earthquake insurance. Older homes cost more to insure, particularly if the house was built before 1940. Homes built of wood are cheaper to insure than those made of brick or masonry. Insurers also assign risk values to different areas of the country that indicate the probability of an earthquake. If the risk value is low, the policy’s premium will be lower.
Most of these factors are out of the control of the homeowner, but one step that you can take to minimize your premium is to retrofit your home with upgrades that meet earthquake building codes. Your local zoning board can provide information on what you can do to earthquake-proof your home. Two common upgrades are bolting the sill plate to the foundation and strapping the water heater to the wall studs. Some areas require that these changes are made by a licensed contractor; other areas permit an experienced homeowner to do the work. These upgrades may also limit damage to your home in the event of an earthquake.
Every homeowner needs to assess the risk of an earthquake versus the cost of earthquake insurance. If your home is severely damaged or completely destroyed in an earthquake, you will still be required to pay your mortgage every month, and you still need a place to live. Most earthquakes, however, do not cause the kind of catastrophic damage seen in the 2010 earthquake in Haiti; there will be some damage to a home, but not enough that earthquake insurance will pay for repairs.
To purchase earthquake insurance, start by talking with the insurance company that insures your home. Your earthquake insurance policy should cover the costs to replace your personal possessions and reconstruct your home, not just the market value of your home and its contents. You should also find out how long you have to file a claim after an earthquake. Damage from a minor earthquake may not be immediately noticeable.