Most of us purchase a homeowners insurance policy to protect our home in the event of a fire, wind, theft or liability claim. We would be devastated if we lost our home in a fire, especially if we did not have insurance to cover it. But what about earthquakes? In an article in the Los Angeles Times titled “Earthquake experts see the ‘Big One’ getting bigger” they write that a “recent report suggests the southern San Andreas [fault] could rupture from Monterey County to the Salton Sea” and could “end up being bigger than earthquake experts previously thought”. A basic homeowners policy does not cover earthquake damage but coverage can be purchased as an endorsement or a separate policy. Clients often ask us…..Do I need it? Is it affordable? Is it worth purchasing? What does it cover? I hope to answer some of these questions for you.
1. Do I Need It?
The most important factor to consider is how much equity you have in your home. For many of us our home is our largest asset. If you have lived in the same home for a number of years chances are you have considerable equity in it. In this case, I would not decide against purchasing earthquake insurance without at least obtaining quotes to determine if it is affordable. You should also consider your individual risk factors: type of soil your home is on (bedrock or fill) and proximity to faults. Enter your address at http://myhazards.calema.ca.gov to learn about the soil conditions and quake forecast where you live.
2. Is It Affordable?
Many factors determine the cost of earthquake insurance. The older the home the more expensive it will be. Most homes in California are frame construction, but construction also affects the premium. Concrete block or brick homes are difficult to insure and would be much more expensive than a frame home. Other factors are number of stories, type of soil your home is on and how close you are to a fault. Very broadly speaking, the premium can run as low as $400 and up into $2,000-3,000+ depending on the location, age and size of the home. In our agency a good average for the homes we insure would be about $900-$1,500 per year.
3. What Does It Cover?
Today there are primarily two different types of coverage. GeoVera Insurance Company offers a single limit. This single limit covers your dwelling, other structures, personal property and loss of use. In some areas they offer a 10% deductible, but more typically they only offer a 15% deductible. The deductible is a percentage of the single limit. So if your single limit is $600,000, the deductible is $90,000. There is no deductible for loss of use.
The second type of policy is sometimes called a mini earthquake policy or standard policy. This policy can be purchased through the California Earthquake Authority (CEA) or some companies will endorse your homeowners policy to include this coverage. This type of policy covers your dwelling for the same amount you insure it for on your homeowners policy. It also includes $5,000 for personal property and $1,500 loss of use. These limits can be increased if purchased through the CEA. Like Geovera, in some areas you can purchase a 10% deductible but most often it includes a 15% deductible. The deductible is a percentage of the dwelling limit.
4. Is It Worth Purchasing?
You should weigh the equity in your home and individual risk factors against the cost of the insurance. A lot of people feel because of the high deductible it is not worth it, but if you choose not to carry earthquake insurance you are taking on a 100% deductible instead of a 15% deductible. The CEA reports that only 12% of Californians carry earthquake insurance. Amy Bach, Executive Director of United Policyholders (www.uphelp.org) says “If you live in a quake-prone area and you can afford it, the best way to protect your home is to retrofit, buy earthquake insurance and set aside funds to pay for repairs below your deductible.”
Give us a call or visit our website at www.sutherland-scherff.com. We will be happy to work up quotes for you so you can make a decision that best fits your individual needs.
