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Earthquake insurance covers damages caused by an earthquake, a sudden and violent shaking of the ground resulting from movement of the earth’s crust. More specifically, earthquake insurance covers damages to your house, personal belongings inside your home, and Additional Living Expenses (ALE) or loss of use, which are the costs to live somewhere else while a policyholder’s area is evacuated or their home is repaired. Insurance coverage for earthquakes is generally not included in standard homeowners or renters insurance policies. It can be added to an existing homeowners insurance policy as an endorsement or purchased as a separate policy.
Roughly 200,000 earthquakes occur each year, the vast majority happening in 42 states considered at risk of earthquakes, according to the U.S. Geological Survey. Most earthquakes are small and unnoticeable, and cause little or no damage, but others can be catastrophic. Some states and areas within them are at a higher risk than others, so earthquake insurance rates and need can vary greatly.
What Earthquake Insurance Covers
Earthquake Insurance pays for reasonable costs that you sustain from the loss of your residence in the event of quake damage. There are three major components: your home (referred to as a dwelling in policies), personal property, and additional living expenses (ALE).
For example, if your home is subject to an earthquake and sustains cracks in the walls, ceiling, foundation or other damages, those would be covered under the dwelling portion of the coverage. There is a deductible and limit to this portion of the coverage. Another portion of earthquake insurance covers your personal belongings inside the impacted home. Personal property claims usually include protection for furniture, electronics, and other belongings. Almost anything can fall within this category, although there is a deductible and limit to this portion of the coverage that is separate from the deductible and limit for the dwelling itself. ALE and loss of use can cover a variety of things while a home is repaired within a reasonable timeframe or until a policyholder finds a new home. You might able to have your insurance company reimburse you or pay for a temporary rental home, apartment, hotel room, restaurant meals, or a temporary telephone line. Moving, storage, furniture rental, and laundry can also be covered.
Earthquake Insurance does not cover a number of things consumers might assume it does. For example, damages resulting from a fire caused by an earthquake would fall under a policyholder’s homeowners insurance, not their earthquake insurance. It also does not cover damage to vehicles, fences, pools and things like china and crystal. Damage to your land, such as landscaping or a sinkhole, are also are usually not covered but some policies include “engineering cost” options which these would fall under.
Another important exclusion to earthquake insurance is external water damage. Flooding and tsunamis are common results of earthquakes but their damage does not fall under earthquake insurance. Both of those events would fall under flood insurance, as well as damage caused by a sewer or drain back up that was a result of an earthquake.
How Earthquake Insurance and Claims Work
Deductibles and premiums to insure your house against an earthquake can vary greatly. Typically, earthquake insurance covers your dwelling up to the same limit as your homeowners insurance, and policyholders pay a deductible between 10%-20% percent of that limit.
Ex: Here's an example of how the coverage limits, deductibles, and insurer payouts work together for a person whose home was completely destroyed by an earthquake. It's just for the dwelling portion of their policy, but the same math and logic extends to the other coverage types.
- Earthquake insurance policy: Coverage limit: $100,000, deductible of 15%
- Claim submitted: $150,000
- Homeowners responsibility = 15% of $150,000 claim = $22,500
- Leftover claim amount = $150,000 coverage limit - $22,500 deductible = $127,500
- Insurer pays out up to the coverage limit, dollar for dollar; in this case, that's the max of $100,000
- Unpaid claim and homeowner's responsibility = $150,000 claim - $100,000 insurer payout = $50,000
To file an earthquake insurance claim, policyholders should call their insurance provider and notify them of the event and any visible damages. Even if there is no visible harm, it can be difficult to evaluate the damage earthquakes cause. If you are in an impacted area, it might be worth having your home inspected, especially if it is an old home.
Determining If Earthquake Insurance Is Worth It
1. Check to see if your homeowner’s insurance covers earthquake damage. Most homeowners insurance policies do not extend to earthquakes, but if it does, there is no need to purchase additional insurance.
2. Do you live in a high-risk area for earthquakes?
There are 42 states at risk for earthquakes, out of which 16 have registered magnitude 6 or greater quakes on the Richter scale and are considered high-risk. Hazards are especially high on the west coast, intermountain west, and some regions in central midwest and east coast - including a hot spot where Arkansas, Tennessee, Mississippi, Kentucky, and Illinois meet. If you live near the San Andreas Fault Line, the New Madrid Seismic Zone, or along the Ramapo Fault Line - to name a few examples - you should consider it. California has earthquakes of significant magnitude more frequently than other states - eight of the 10 most costly U.S. earthquakes in history have occurred in California. The intensity of tremors can be felt miles away from the epicenter, so it might still be worthwhile to insure against one if you're outside of the high-risk areas.
|States with Highest Risk for Earthquakes|
If you live in a high-risk area where earthquakes are more frequent and more powerful, you should get earthquake insurance. Remember, there is no way to predict how powerful earthquakes will be, or when they will strike. This brings us to our last question.
3. Can you rebuild your life easily after an earthquake? Help determine if you should get earthquake insurance by asking these three questions:
- Can you afford the cost of repairing or rebuilding your house entirely if it were damaged or destroyed by an earthquake?
- Can you afford to replace the personal belongings in your home after an earthquake?
- Can you pay for temporary housing if your home is deemed uninhabitable, either due to an area hazard or structural damage?
If you answered “no” to one or more of the above, then you should consider getting earthquake insurance.
Factors Affecting the Cost of Earthquake Insurance
Rates for earthquake coverage in California average $1.75 per $1,000 of coverage. For example, if you had to purchase earthquake insurance for a $250,000 home, it would cost you roughly $437 per month. In some high-risk regions, that might even exceed the price of a homeowners insurance policy. In lower-risk regions coverage can cost as low as 50 cents per $1,000 of coverage. So for the same $250,000 home, a policyholder in a low-risk region might pay as little as $125.
Regardless of the level of risk, there are things that affect the cost of earthquake insurance premiums outside of geography. The age of your home and the number of stories (including the basement) have an effect on the cost of premiums. Newer homes tend to have better materials and can be designed with earthquakes in mind, so they typically cost less to insure than old home. The taller a home, the more at-risk it is to topple and so it is more expensive to insure.
Homes with wood frames cost less to insure because it is more elastic than other materials. Raised rather than slab foundations also give a home elasticity as its base, which is crucial during an earthquake. Even homes built on sandy soil instead of clay or rock will have lower premiums for the same reason.
Policyholders also can save money by earthquake retrofitting their home. Some of the most common retrofitting to older homes includes bolting the home to the foundation, bracing the chimney and water heater, installing automatic gas cut-off valves and using plywood to strengthen cripple walls. These all work to make the home more stable, and thus less likely to sustain serious damage in the case of tremors.