California Earthquake Insurance: Should You Buy It?
Friends and clients often ask me “Do you have earthquake insurance?” so I thought it might be a good idea to write a blog article about this topic. Insurance is one of those things we pay for and hope we never need to use. However watching the recent weather-related calamities in Texas and Florida, as well as the fires just to our north and the fires this week in the Los Angeles area, it is on a lot of people’s minds these days.
First a disclaimer: insurance is a very personal decision and this article is simply my opinion based on my own experiences and research. I strongly encourage you to consult experts in the field as you weigh your risk tolerance.
Some of the questions you may want to ask yourself as you weigh whether or not to purchase California earthquake insurance:
- How much equity do you have in your home? If an earthquake hit tomorrow and your home were destroyed, it would not be covered by your regular homeowner’s insurance unless it were impacted by a secondary cause such as fire instead of earth movement. With the increases in home values since the 2008 economic crisis, many have a great deal of equity in their home that they may choose to protect with earthquake insurance.
- What is your risk tolerance? At last count, only 10% of Californians have earthquake insurance. The means 90% of Californians are not insuring themselves against an event that scientists say has a high probability of occurring. The United States Geological Service says that there is a 72% chance of a 6.7 or greater earthquake occurring in the San Francisco region between 2014 and 2043.
- Would purchasing earthquake insurance mean you would need to cut back on necessities in life? If purchasing earthquake insurance means you would have trouble feeding your family or paying for healthcare, it might not be right for you at this time.
- Do you have assets beyond your home that your mortgage holder could go after? In the event your home is destroyed or uninhabitable, your mortgage payment is still due every month. Without earthquake insurance you are paying two monthly payments – for your mortgage and temporary housing. If your thought is you would “walk away” from the home and mortgage, you might want to consider other assets that could be seized if the mortgage company decides to sue for the loan balance. Also if you have a reverse mortgage, consider the impact to your income flow if your home is significantly damaged or destroyed.
What Does Earthquake Insurance Cover?
Earthquake insurance has come a long way since the California Earthquake Authority was formed in 1996 after the destructive Northridge Earthquake in Southern California.In the initial days, plans were high-cost, high-deductible with low coverages. Now there are a variety of plans to suit various risk tolerances and situations.
Typical Coverage Categories for California Earthquake Insurance:
- Home (Dwelling): The cost to re-build your home. This number is usually the same amount you have covered in your standard homeowner’s policy.
- Building Code Upgrade: The cost to bring your home up to current code requirements if you have to re-build it or make significant repairs.
- Personal Property / Belongings: This is optional coverage, depending on the policy, protecting your electronics, furniture and other items inside your home.
- Emergency Repairs: Covers immediate repairs needed after an earthquake that are necessary to protect your home from further damage, such as to repair broken windows or remove broken glass.
- Loss of Use: Costs exceeding your current housing expenses, to live elsewhere if your home is uninhabitable after an earthquake.
- Breakables: Breakables is an optional coverage that covers breakable belongings like dishes and ceramics.
- Masonry Veneer: Exterior Masonry Veneer is an optional coverage that covers exterior masonry veneer, such as decorative stone or brick.
What Does Earthquake Insurance Cost?
The California Earthquake Authority has created an easy-to-use online premium calculator so you can get an idea of different coverage options and costs. I found that the calculator closely matched what my insurance company, USAA, offered. As with all insurance plans, you can lower your premium cost by selecting lower coverages and higher deductibles.
Where Can I Read More About This Topic?
You may want to start with these articles:
The California Earthquake Authority Website
U.S. Geological Survey: Earthquake Probability Map for San Francisco Bay Area
Los Angeles Times: Rethinking Your Stance on Earthquake Coverage
San Francisco Chronicle: Earthquake Insurance in the Bay Area is Risky, Expensive Business
Conclusion
I chose to purchase earthquake insurance on my home, but know many who have decided not to do so. Whatever your decision, a good first step is to improve the chances of your home surviving an earthquake. Bolt the foundation. Strap your hot water heater. Install a gas auto-shut off valve. Earthquake insurance is something we hope we will never use, and strengthening your home against earth movement is a good first step in protecting one of your most valuable assets.
As always, I am available to discuss your real estate questions or needs. Please call or text me at 415.847.5584 and I will be in touch right away.
What am I missing? Please leave your comments and suggestions in the comments section below.
Very balanced assessment of the pros and cons of earthquake insurance
Thank you, Susan, glad you liked the article!
Fantastic read. I love your breakdown of questions to ask and consider. This is definitely a question that comes up a lot. Great resource post.
Thank you, Judy!
Really amazing post that’s very informative! Thank you for all those that needed it.
So glad you found it informative, Summer! Thanks for your comment.
It is worth thinking about the relative risk for your type of home construction and the type of ground your home is built on. When we moved to San Anselmo we nearly bought a house built in 1906, before the San Francisco earthquake that year. We looked under the house, which was built on a steep hill in the Barber Tract area of the town, to see how it had survived that major earthquake. To our surprise, we found no sheer-bracing, no retro-fitting of any kind, and the whole 3,000 square foot house supported on its original brick piers, looking as good as new. If your house is built on bedrock, and especially if was built in the last 30 years to California code, its likelihood of complete / near total destruction by earthquake is, realistically, very low – even if the quake center isn’t far away. Our current house is built on concrete piers sunk 50 feet into bedrock, tied together with grade beams, with a wood frame bolted onto it and sheer-braced with plywood siding. Earthquake insurance might buy us some peace of mind, but with a 15% deductible it’s hard to conceive how that much earthquake damage could possibly be done to it. There are definitely homes where I would get earthquake insurance – slab foundation on reclaimed land for example – but for our home, I sleep ok without it.
Excellent insight. I think it’s up to each person’s risk tolerance. Another person on my Facebook page mentioned that loss of use insurance, which is part of earthquake insurance, is also a consideration since after an earthquake it could be quite a while before a home is inhabitable again depending on the amount of damage done and the availability of tradespeople to rebuild, which has been an issue after the Napa fires. I recently was wondering why I have pet insurance on my cat… then he got sick and the huge bills are covered, so I’m glad I have it. Hoping your home continues to fare well in future quakes. It certainly has a great history! Best, Thomas