Earthquake Insurance Details

Given that most homeowner's and renter's insurance policies do not include earthquake coverage, you will need to purchase it as an endorsement, an add-on to your renters' policy, or as a separate cover. What your earthquake insurance cover entails depends on what you choose. Most of the time, you will need it to cover damage to your home, property, or accommodations while your home is under repair. If you are renting the property you are in, you could choose to only insure your personal property. Typically, earthquake insurance doesn't cover damages made by sinkholes, fire, floods, snow, or vehicle damage.

Assume you choose an all-inclusive cover, and an earthquake wrecks your walls and destroys your furniture and electronics. The insurer will pay for your home renovations and cater to the cost of replacing your furniture and electronics. They will also offer you money to cover your temporary accommodation and food.

Several factors determine the cost of earthquake insurance, the main ones being:

  • The Foundation of Your House: Homes with raised foundations and built on sandy soil tend to have lower premiums as they are less prone to earthquakes.
  • Length of the House: The longer the house, the more the insurance will cost as the chances of it crashing down during an earthquake are high.
  • Age of Your House: The older the house, the more premium you will need to pay.
  • Framing Materials: Homes with steel or stone frames cost more to insure as the said materials are elastic.
  • Distance to Fault Lines: Houses built on or near fault lines attract high premiums as the chances of wreckage are higher.
  • Price of Your House: The pricier your house is, the more it will cost to insure it.

Earthquake Insurance Example

Barbie took out an all-inclusive earthquake insurance cover a year before her house was wrecked during an earthquake. Her plan is worth $150,000, considering the value of her house and property combined. The insurance company will deduct the set deductible then wire her the rest of the money.

Like all insurance plans, earthquake insurance comes with a deductible. Your insurer will subtract this deductible before issuing you your final payout. Deductibles vary due to many factors, so if we assume Barbie's particular insurer has a set deductible of 10%, it means they are liable to deduct $15,000 from her initial cover.

Since $150,000 - $15,000 is $135,000, Barbie will only receive $135,000 from the insurance company. The summary of costs and payouts is:

  • Total insurance coverage= $150,000
  • Deductible= 10% ($15,000)
  • Claim submitted= $150,000
  • Payout expected= $135,000

History of Earthquake Insurance Covers

After the 1994 Northridge earthquake in California, all insurance companies completely stopped offering homeowners insurance covers. This was attributed to California's mandatory offer, a law that states that all homeowners' insurance covers should include earthquake damage. It triggered a public outcry seeing that California experiences 49% of the country's earthquakes, according to the US geological survey.

The government finally caved to the people's outcry and introduced two new options. The first one being that insurance covers could offer what was called the mini policy. The mini policy is basically an earthquake cover, with a deductible decided by the company. It only covers certain aspects of your property.

The second solution was a private-funded and publicly-operated company called the California Earthquake Authority (CEA). Insurers who join the company can sell you what is called the CEA mini-policy. This means you will pay the insurer the necessary premium, but they will then send the money to CEA to cover any losses during an earthquake.