Earthquake Insurance: Do You Need It?

If you’re worried about damage to your home due to an earthquake, you can purchase separate insurance or get a rider to your current policy. Here’s what you need to know about earthquake insurance.

What is Earthquake Insurance?

Earthquake insurance is a special rider, or endorsement, on your homeowners insurance policy that covers damage done to your home by seismic activity. Most of this coverage only applies to the damage directly caused by the earthquake.

So, if a fire damages your home in the aftermath of an earthquake, that can actually be covered under your regular homeowners policy. Water damage caused by flooding in the wake of an earthquake, however, is not covered by your policy. Instead, you may need separate flood insurance for those damages.

As you can see, the coverage for natural disasters is complicated. If you live in an area prone to earthquakes, consider separate insurance to ensure that your home is covered.

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Do You Need Earthquake Insurance?

The type of homeowners insurance coverage you need often depends on your lender. Your lender might require certain types of insurance riders in addition to your homeowners policy, depending on the risks of the area. For example, if you live near a floodplain, your lender might require a flood insurance rider before they approve your loan.

Earthquake insurance is similar. If you live in an area that is rated as a high risk for earthquakes, your lender might require an earthquake endorsement on your homeowners policy.

When figuring out if you need earthquake insurance, you might consider the likelihood that your area will experience a significant event in the next 50 years. The United States Geological Survey maintains a list of earthquake hazards and even works out probabilities related to the likelihood of major events. Use that and historical data when deciding whether earthquake insurance makes sense for you.

In some states with fracking, there have been reports of increased seismic activity. So, even if you weren’t worried about earthquakes in the past, you might want to rethink your situation.

Regardless of how you feel about the necessity of earthquake insurance, if your lender requires it, you may need to get an endorsement in order to close on the loan.

What Does Earthquake Insurance Cover?

For the most part, earthquake insurance focuses on the damage directly caused by a seismic event. In fact, your earthquake insurance might even cover damage caused by seismic events related to volcanoes. Check your policy to make sure you understand which events are included.

In general, you can count on your earthquake endorsement to cover any emergency repairs you need to make in order to stabilize your home. Many policies also cover you while you can’t use your home. This “loss of use” coverage helps you pay for the costs of rent or a hotel room while you wait for repairs to be completed.

Your personal property inside the home, such as your furniture and electronics, are not included in your earthquake insurance. So, when figuring your coverage, those items should be included in your regular homeowners policy.

How Much Does Earthquake Insurance Cost?

Like any insurance policy, earthquake insurance premiums are based on a variety of factors. In general, though, you might expect to pay between $100 and $300 per year, depending on where you live. In some places, like California, earthquake insurance premiums are often more than $1,000 per year.

The National Association of Insurance Commissioners (NAIC) lists some of the items taken into consideration when setting a rate for your earthquake insurance:

  • The proximity of your home to a seismic zone
  • Risk of an earthquake
  • The age of the home
  • The cost to rebuild your home
  • Type of foundation you have
  • Type of home construction you have
  • Additional coverage for secondary structures, like detached garages and sheds

Another important factor is your deductible. As with any insurance policy, if you choose a higher deductible, your monthly premium will be lower. However, you will need to have a way to cover a higher deductible through your emergency fund or some other account if you ever need to use your insurance.

When determining your deductible, the amount is usually based on a percentage of the home’s rebuild value. So, rather than setting a deductible like $500 or $1,000, as you would with other types of insurance, you might instead decide on 10% to 15% of the rebuild value.

So, if your home’s rebuild value is $250,000, and your deductible is set at 10%, you’d need to pay $25,000 out of pocket before the insurance kicks in. For the most part, earthquake insurance is most valuable in situations where major damage requires big repairs or even a complete rebuild.

Where Can You Get Earthquake Insurance?

Companies like Lemonade and Gabi make it easy to add earthquake endorsements to your homeowners policy. You can also usually get a relatively low price on your homeowners policy with these companies.

You can also use a site like Policygenius to compare multiple insurance policies at once. With Policygenius, you fill out information about what you need, and you’ll see recommendations for multiple policies that fit the bill. This makes it easy to compare your options and choose what is likely to work best for you.

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It’s also possible to get earthquake insurance through your state. Depending on where you live, you might be able to find a policy through a government department. California is a good example of this – the state has an agency that can facilitate your coverage for earthquakes.

If you have an insurance agent already, and you’re interested in adding an earthquake endorsement, talk to them about the possibility and the cost. You can compare this information with what you find in an online search or by checking with your state government.

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Bottom Line: Is Earthquake Insurance Worth It?

Before you decide to pay for an earthquake endorsement, carefully consider whether it’s worth it for you.

If you live in an area where your home is at low risk from damage to an earthquake, you might not need the insurance. On the other hand, if you live in an area with a moderate or high risk of an earthquake, getting an endorsement might make sense.

Consider the cost of replacing your home and weigh it against the cost of the insurance. Also, think about the deductible, and what that might cost you. When you live in an area at risk for earthquakes, make it a point to save up money in an emergency fund, since your deductible could be in the tens of thousands of dollars.

In the end, think about your peace of mind, what you can afford, and then decide if earthquake insurance is the right move for you.

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