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Earthquake Insurance - A Comprehensive Guide

Earthquakes can occur at any time. They are one of the few natural disasters that we have a hard time predicting. Due to this, they have the potential to cause some insane destruction. While their severity varies, an earthquake of any level can result in some serious damage to structures, like your home. That is where earthquake insurance can come in handy, which works to assist you after disaster strikes.

Even if you think you are immune to earthquakes, having coverage of this kind can be a lifesaver. While major fault lines are known, the ground can be a pretty unstable thing. This piece serves as your guide to the world of earthquake insurance, including how much it costs, how to obtain a policy, and how much coverage it offers.

What is Earthquake Insurance?

Earthquake insurance is designed to financially help you after an earthquake. This insurance focuses on assisting you with repairing/rebuilding your home and replacing personal belongings in the aftermath of an earthquake. It also works to help you with extra expenses if you are displaced following such a disaster. There is a variety of things that can cause an earthquake, from natural fault lines to the business of fracking. Earthquakes are a disaster that can have a serious impact on both your life and finances. This type of insurance policy sets out to ease some of the stress.

Do You Need Earthquake Insurance?

It depends. Unlike auto insurance, there is no state-mandated minimum amount of earthquake insurance you must carry. The only state that has a law related to earthquake insurance is California. California requires that insurance companies offer coverage, but they do not have a law requiring the actual purchasing of a policy. For these reasons, it is best to look at your living situation to determine if you need earthquake insurance.

The U.S. Geological Survey (USGS) recommends homeowners obtain an earthquake insurance policy if they live near fault lines, have a history of earthquakes in the area, and the type of land your house sits on. You should also take into account how well your home is built, its materials, and its value. There are many other factors, but these are some major ones that should be considered. In general, though, it is recommended that you obtain some level of earthquake coverage because nature can be so unpredictable, no matter where you live.

What Does Earthquake Insurance Cover?

What your earthquake insurance policy covers can vary, but that can be related to policy add-ons. Those will be explained further but let’s first look at the three fundamental categories when it comes to earthquake insurance policies. Explored below are the damages a standard earthquake policy will cover.

Dwelling Coverage

Dwelling coverage refers to your home and rebuilding it. This is the part of your policy where your insurance company will help repair the structure of your home. Dwelling coverage will also help pay for the repairs to any buildings attached to your home, such as your garage.

Personal Property Coverage

This part of your policy covers any personal belongings within your home during an earthquake. Your insurance company will assist you in replacing items that suffer any damage after the disaster. Some of these belongings are typically furniture or home decor.

Additional Living Expenses

Additional living expenses coverage, also known as loss of use coverage, will help you if you are displaced after an earthquake. Some earthquakes are more than capable of rending your home inhabitable. When this happens, you may be forced to find a hotel to stay in until the repairs are done. During this time, your insurance company will cover certain accumulated costs, like food and lodgings.

Insurance Policy Add-Ons

As previously mentioned, your insurance policy may look different from your neighbors if you opt to add on specific coverage. What is offered can vary from company to company, but generally, you may have the option to add:

  • Building cover upgrade coverage - If your home is damaged and it will cost extra to get it up to code, your insurance will cover it despite it exceeding the value of your home.
  • Emergency repairs - With this add-on, your insurance company will pay for immediate repairs to prevent your home from sustaining more damage after an earthquake.
  • Land restoration - Damage to the land surrounding your home usually is not covered by insurance companies; to have your land covered, you may want to add on land restoration.

What has been outlined above may not be the only policy riders you encounter during your hunt for earthquake insurance. Generally, it depends on what the company you choose offers. If these are important, try spending extra time searching for an insurer that offers exactly what you need. Proper insurance can make a big difference during tough times. You want to get it right.

What Isn’t Covered Under Earthquake Insurance?

While earthquake insurance covers a lot, there is some damage that your policy will not cover. Some of these incidents may actually be caused by earthquakes but do not fall into specific parameters required for your insurance to cover them. Explained below are damages your home may sustain after an earthquake that your insurance policy will not cover. It is best to keep these in mind when you are shopping for a policy or about to file a claim.

Fires

Any fires that occur within your home after an earthquake will not be covered by your earthquake coverage. Instead, such an incident will be handled by your homeowners insurance policy. A disaster of this kind is still covered by insurance; you just have to make sure you are filing a claim with the correct type of insurance.

Vehicle Damage

Even if your car is sitting in your garage, it will not be covered by earthquake insurance. Despite it technically being your personal property, any damage sustained to your vehicle will be covered by your auto insurance policy, specifically comprehensive coverage.

Floods

Floods after an earthquake will be covered by either your homeowners insurance or flood insurance policy. It depends mainly on where the water comes from. If an earthquake causes a pipe to burst in your home, then homeowners insurance will cover the damage. When the water comes from a source outside your home, flood insurance will help. Just make sure you are carrying the appropriate policy type for such a disaster.

Masonry

The type of exterior your house has will generally not be covered by earthquake insurance. This can refer to the stone, brick, or rock material used on the outside of your home. To cover this part of your house specifically, you may need to purchase a policy add-on.

Sinkholes

Sinkholes can be a bit rare after an earthquake, but they do certainly happen. If you encounter one, your earthquake insurance will not cover it. Such disasters will be covered by your homeowners insurance, or you may have to buy a whole separate policy for it.

Does Homeowners Insurance Cover Earthquake Damage?

No. Neither homeowners nor renters insurance will not cover most of, if not all, damage caused by earthquakes. As we have discussed, there may be some exceptions regarding floods and fires after earthquakes. But when it comes to dwelling coverage, personal belongings, and additional living expenses, you will need an earthquake insurance policy to cover such damage. Sometimes you may be able to add earthquake coverage to your current homeowners or renters policy, but most likely, you will need to shop for a separate policy.

How Much Does Earthquake Insurance Cost on Average?

On average, an earthquake insurance policy can cost you anywhere from $300-$800 per year. That can be around $25-$67 per month, but this is just a general estimate. There are a lot of factors that go into determining your insurance premiums. The main one is where you live. California, which sees more earthquakes and is situated on a fault line, will naturally have higher premiums. A single-family home in California may see earthquake insurance premiums more in the range of $1,000-$3,000 per year. But there are many other factors that go into determining your insurance premiums, making it hard to give an accurate average. While it is good to have this baseline, know that every person has a different living situation. The factors explored below can give you a better idea of what you may be paying for earthquake insurance.

Earthquakes And Deductibles

A good portion of your determined earthquake insurance rates will come from how high your deductibles are. Earthquake deductibles can get very pricey, very fast. On average, an earthquake insurance policy deductible can range anywhere from being 10%-20% of your coverage limit.

Sometimes, insurance companies will even use separate deductibles for the main parts of your policy, like dwelling coverage and personal property coverage. This means if you have a 10% deductible, it could apply to each claim as opposed to being an overall policy standard. If you have a dwelling coverage claim for $10,000, you will have to pay 10% of that. In the same claim, if you have a personal property coverage amount of $50,000, you will also have to pay 10% of that. This means standard deductibles could be more like 20% overall. Double-check with your insurer before signing such a policy.

What Determines Insurance Rates?

Like other types of insurance, there are numerous factors that go into your annual insurance premiums. With earthquake insurance, as you will see explored, much of your rate is determined based on where you live. Outlined below are the types of factors that insurance companies take into account when setting your premiums.

Location

As touched on briefly, where you live affects your premiums significantly. This can be something as general as the state you live in or as specific as the type of soil you live on. Factors like these tell a company a lot about your earthquake risk. For example, if you live on a recognized fault line, your premiums will be higher.

Deductibles

Much like with other insurance policies, how high or low your deductibles are will directly impact your annual rates. Deductibles are what you promise to pay out of pocket should you have to make a claim. Naturally, the more you promise to pay, the less your insurance company will have to shell out, making your rates lower.

House Materials

A big focus of earthquake insurance policies is your home and protecting it. For these reasons, the materials used will affect your rates. If you have a newer home with modern materials, you may be paying less in annual insurance premiums.

Size of Home

Much like the case with materials, how big your home is can impact your insurance rates. For example, how many stories are in your home may be noted by your insurance company. Taller homes have more of a chance of falling over, making their premiums higher. A big part of your policy focuses on dwelling coverage, meaning your actual dwelling will be taken into great account when it comes to rates.

Cost to Rebuild

Due to the fact that your insurance will be responsible for a lot when it comes to repairing your home, how much it actually will cost greatly affects your premiums. Having a more expensive home will mean higher premiums and vice versa.

Earthquake Coverage Policy Discounts

There are a couple of ways you can lower your earthquake insurance premiums. Refitting your home to better withstand earthquakes will result in a slight dip in premium costs. This is due to the fact that you are seen as less of a risk by insurance companies meaning you are less likely to file a claim. If you live in California, you may be eligible for a discount from the California Earthquake Authority (CEA) if you have an older home and have completed a seismic retrofit. Other available discounts may come from your insurance company. You should take time to inquire about them before settling on a policy.

Is Earthquake Insurance Worth it?

If earthquake insurance is worth it to you depends greatly on where you live and if you are willing to pay for coverage. In general, it is always good to obtain insurance for any sort of disaster. But how urgent it is may be up to you.

There are some resources where you can see how at-risk your area is for an earthquake. As we have discussed previously, some areas sit on more fault lines than others. This means that a homeowner in California is more susceptible to earthquakes than someone living in North Dakota. The price for such a policy may be a bit offputting, especially with the details of deductibles, but this insurance can come in handy after a tragedy. Earthquakes are highly unpredictable, causing damage that can cost you hundreds of thousands of dollars. It would be best to have a policy in your corner.

How to Buy Earthquake Coverage

There are a couple of ways you can go about buying an earthquake insurance policy. The process is not too different from buying any other type of insurance, but circumstances and regulations around them may vary by state. Outlined below are the two steps you can take to begin obtaining the best earthquake insurance policy.

Current Homeowners or Renters Insurance

As previously mentioned, your current homeowners or renters insurance policy may be able to add on earthquake coverage. Start by asking your insurance company if they have an add-on earthquake policy. If they are unable to assist you, they can typically provide you with some resources for obtaining an earthquake insurance policy.

Obtain a Separate Insurance Policy

If your current homeowners or renters insurance does not offer earthquake insurance as an add-on policy, you may be stuck shopping around. As previously mentioned, your insurance company may be able to point you in the right direction. If you need more help, your state’s Department of Insurance should have some resources online on obtaining an earthquake insurance policy. This route may take more time, but you are going to be thankful for the protection after disaster strikes.

What is The Best Earthquake Insurance Coverage For You?

When it comes to deciding on a policy, you will want to calculate the value of your home and your personal belongings within it. These are the main focus if you have to file a claim after an earthquake, so you want to make sure that they are appropriately protected. You also have to consider what you are willing to pay in deductibles.

Remember that earthquake coverage deductibles can be more complicated than those found with other types of insurance. A 10% deductible may be more like 20% at the end of the day, depending on what is outlined by your insurance company. It is also worth noting that the less you pay in deductibles, the higher your premiums will be. But this should not be an excuse to be underinsured. Do not promise a high deductible just for a lower rate. When an earthquake strikes, you could be on the hook for a great sum of money. Be honest with yourself when it comes to choosing coverage.