Earthquake Insurance: What Does It Cost And Is It Worth It?
Molly Grace7-minute read
January 06, 2022
When the ground stops shaking, will you be covered?
It’s a question that too few homeowners consider, even in earthquake-prone areas. In California, for example, just 10% of homeowners are insured against earthquake damage, according to the California Earthquake Authority (CEA), the country’s largest provider of earthquake insurance.
However, it’s not just Californians who should consider purchasing coverage – earthquakes can happen pretty much anytime, anywhere. Consider the New Madrid seismic zone in Missouri, the magnitude 7.3 earthquake that occurred in Charleston, South Carolina in 1886 or the increasing number of earthquakes occurring in Oklahoma due to industrial wastewater being injected underground.
When earthquakes occur, they can cause costly and even catastrophic damage to your home. However, earthquake insurance policies themselves are often costly, leading many homeowners to risk it and forgo coverage to save money.
How do you determine whether earthquake insurance is right for you? Let’s take a look at how this type of insurance coverage works and if it’s worth purchasing a policy.
What Is Earthquake Insurance?
Earthquake insurance provides coverage for your home in the event that an earthquake causes damage to it. This type of insurance is separate from standard homeowners or renters insurance.
If an earthquake damages your home and you don’t have earthquake insurance, you’ll most likely end up paying out of pocket to make any necessary repairs. If your property is at high risk for earthquakes, the seller may disclose this in a Natural Hazard Report. Most standard homeowners insurance policies don’t cover earthquake damage.
What Does Earthquake Insurance Cover?
Exactly what your earthquake insurance covers will depend on your individual policy. In general, though, a typical earthquake insurance policy is comprised of three parts:
- Dwelling coverage, which helps you pay to repair or rebuild your home.
- Personal property coverage, which helps you pay to replace damaged personal items such as furniture or TVs.
- Loss of use coverage, which pays your temporary, additional living expenses if you need to live somewhere else while your home is being repaired.
Additionally, your insurance may include (or offer as an optional rider) building code upgrade coverage, which means that if you need to rebuild your home at an increased cost due to the original structure not being compliant with current building codes, your insurance will help pay those extra expenses.
For additional coverage, ask your insurer about what types of riders they offer. One example is homes with masonry veneers; to get your earthquake insurance to pay for the repair of this type of exterior, you’ll need to purchase coverage specifically for this purpose.
Is All Earthquake Damage Covered?
Earthquakes can cause all kinds of problems that cause problems of their own, begging the question: Which of my insurance policies kick in after an earthquake?
For example, say an earthquake causes a pipe in your home to burst, leading to extensive water damage in your home. Does your earthquake insurance cover that? Flood insurance? Regular homeowners insurance?
In this case, it would likely be your homeowners insurance that would pay to repair this damage.
However, if the earthquake were to cause water to flood into your home from an external source, your flood insurance would provide coverage.
Likewise, if an earthquake causes a fire in your home, standard homeowners insurance would again likely be the one to kick in.
If an earthquake causes damage to your vehicle, a comprehensive car insurance policy would pay for repairs.
The bottom line: no, earthquake insurance doesn’t cover all damage caused by an earthquake. In many cases, other types of insurance would kick in to cover repairs or replacement of damaged property.
How Much Does Earthquake Insurance Cost?
There’s no getting around it: earthquake insurance can be expensive, and the more likely you are to need it, the more it will likely cost you.
How much your policy will cost depends on the amount of coverage you purchase, your deductible and factors relating to the home itself, including its age and where it’s located in relation to known faults.
Annual earthquake insurance premiums can range from $800 – $5,000 a year and policy deductibles can be relatively high – often 10% – 20% of your coverage limit.
Your deductible is what you’ll be required to pay out-of-pocket before your insurance kicks in. Because many damaging earthquakes happen in California, where home values are so high, these high percentage-based deductibles can make homeowners think twice about whether purchasing coverage is even worth it.
For example, say you purchase earthquake insurance that covers the full value of your home: $500,000. If your policy has a 20% deductible, you’ll be responsible for $100,000 of the repairs before your insurance will pay out. If your home sustains less than $100,000 in damages from an earthquake, you’ll likely be left wondering what the point of paying your $1,000 – $2,000 annual premium was.
Do I Need Earthquake Insurance?
The U.S. Geological Survey (USGS) says you should consider these factors when deciding whether purchasing earthquake insurance makes sense for you:
- Proximity to active faults
- Frequency of earthquakes in your area
- How much time has passed since the last earthquake
- Your home’s construction type, layout, materials used and quality
- Whether your home was built with earthquake-preparedness in mind
- The type of land your home sits on, including the type of soil and the slope of the land
- Amount of annual rainfall
- The value of your home and its contents
- The cost to insure the home
That might seem like a lot of things to think about, but it really boils down to three simple questions:
- How likely is it that an earthquake will happen?
- How likely is it that an earthquake would cause damage to your home?
- Would you be able to afford to repair your home after an earthquake without the help of insurance?
That last question is an important one. Though the vast majority of the 55 earthquakes per day that occur around the world cause no or little damage, it only takes on big one to cause catastrophic damage to your home.
To better understand how often damaging earthquakes occur in your area, check out this map from USGS.
While earthquake insurance can be great to have if your home is seriously damaged and the damage exceeds your deductible, the high premiums and deductibles that come with earthquake coverage can make the balance between what you pay and what you get uneven.
In fact, according to the Federal Emergency Management Agency (FEMA), most potential earthquake insurance buyers are not likely to experience damage that would exceed their deductibles.
Earthquake Insurance For California Homeowners
California experiences 90% of the country’s earthquakes, so the state has a very robust earthquake insurance program. In fact, California Earthquake Authority (CEA), which offers coverage through participating insurance companies, is the largest provider of earthquake insurance in the country.
California residents are able to purchase earthquake insurance policies through their homeowners insurance provider. If you live in California and are want to know how much coverage on your home would cost, CEA offers a free calculator that can give you an estimate of what your premium would be.
Earthquake Insurance FAQs
I Am A Renter. Do I Need Earthquake Insurance?
Just because you don’t own your place doesn’t mean you shouldn’t insure the belongings you have inside it.
During a strong earthquake, the items in your home will shift around and potentially become damaged – plates can fly out of cabinets, TVs and computers can be thrown to the ground. After the earthquake is over, you could have to leave your rental while repairs are made to it, meaning you might need extra cash for temporary living arrangements.
Renters earthquake insurance can help you cover the costs associated with returning to normal life after an earthquake as a renter. These types of policies can often be obtained relatively cheaply, as well. In California, renters could pay as little as $35 a year for a policy.
Where Do I Buy Earthquake Insurance?
Who you’ll buy your earthquake insurance from will likely depend on how your state typically handles these types of policies and who typically offers them.
Start by contacting your homeowners insurance provider to find out if they offer these types of policies or reach out to your state’s department of insurance.
I Just Lived Through My First Earthquake. Can I Buy Coverage Now?
According to the National Association of Insurance Commissioners, most insurers wait a certain amount of time after an earthquake occurs – usually 30 – 60 days – before they’ll begin writing new policies.
Are There Any Discounts Available For Earthquake Insurance?
You may be able to receive a premium discount on your earthquake insurance if you have your home retrofitted to better withstand the shaking from earthquakes.
In California, for example, CEA offers up to a 25% premium discount for those with older homes who have completed a seismic retrofit.
Is There Earthquake Insurance For My Car?
Neither your earthquake insurance nor your homeowners insurance policies will provide coverage if your car is damaged by an earthquake.
To insure your car against earthquake damage, you’ll need to purchase comprehensive car insurance, which is an optional add-on you can include in your auto insurance policy that covers damage to your car not caused by a collision, including damage caused by natural disasters.
I Live On The East Coast. Do I Need Earthquake Insurance?
While damaging earthquakes are much less likely to occur on the East Coast than they are on the West Coast, it can happen.
Because major earthquakes are less likely in these areas, insurance is typically much cheaper. According to the Insurance Information Institute, coverage on the east coast could cost less than 50 cents per $1,000 of coverage.
Summary: Earthquakes Cause Serious Damage. Protect Yourself.
There aren’t really any good answers to the question of whether you should or shouldn’t protect your home with earthquake coverage. It’s costly and you may not ever end up needing it. If you do end up needing it, however, you likely won’t regret having bought it.
Whether you decide to purchase earthquake insurance or not, it’s important to make an informed decision and at least evaluate your level of risk to determine whether purchasing a policy makes financial sense for you.
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