Insurance

Homeowner's or Renter's Earthquake Insurance

Earthquake coverage is excluded from homeowners' policies and other property insurance policies. Although earthquake coverage can be purchased, it will be expensive. Even if a homeowner elects not to buy earthquake coverage, steps can be taken to minimize damage when a quake occurs.

Earthquake Exclusion

For most homeowners, earthquakes are rare events. When they do occur, they usually impact just a handful of states. California accounts for half of all earthquake insurance policies sold.

Washington and Oregon experience roughly 1,000 quakes per year. Illinois, Kentucky, Missouri, Tennessee and Arkansas are all on the New Madrid Fault. Alaska has the Denali Fault. Wyoming, Montana and Idaho experience a few jolts from seismic activity around Yellowstone National Park.

It is not surprising then that most homeowners just don't feel the need to buy earthquake coverage that they may never need.

The standard homeowner's insurance policy excludes coverage for damages resulting from earth movement, including earthquakes, land shock waves associated with volcanic activity, landslides, mudslides and so on. Existing policies generally provide that the exclusion applies to earth movement that is caused by both natural and artificial or human means.

Earthquake Coverage

If you are a homeowner living within a few hundred miles of a major fault line, you may want to consider buying earthquake protection. It will be expensive, largely due to the Northridge Earthquake that occurred in California in 1994 resulting in claims totaling $16 billion. That event nearly devastated the insurance industry.

California is the leader in earthquake insurance development because of its experience with earthquakes and its population density . After the Northridge Earthquake, the insurance industry stopped offering earthquake coverage. The state then created the California Earthquake Authority (CEA), which offered new earthquake protection through insurers. CEA now sells 70% of all earthquake insurance in California.

The standard CEA policy features the following:

  • Personal property coverage limited to $5,000 but may be increased to $100,000
  • Additional living expense coverage limited to $1,500 but may be increased to $15,000
  • Residential home coverage but no coverage for detached buildings, fences, retaining walls, swimming pools, irrigation systems and such
  • A standard deductible of 15% of the home's market value that can be reduced to 10%

Private policies offer more options for higher coverage limits than the standard coverage plans offer. Premiums are determined according to the level of risk.

Still, most homeowners do not purchase earthquake insurance for the following reasons:

  • Major earthquakes are infrequent
  • Losses are likely to be below the deductible in the CEA policy or not covered at all
  • The government will provide relief in the event of a major quake

Preparing for the Next Major Quake

Prepare your home to minimize the potential damage if a major earthquake occurs:

  • Brace the home's water heater to minimize the risk of fire and water damage
  • Install flexible attachments to gas appliances and a gas shut off valve
  • Fasten cupboard doors with childproof latches to keep them from opening
  • Fasten bookcases, mirrors, televisions and other tall or heavy objects to wall studs
  • Show all family members how to shut off the gas in an emergency
  • Bolt the home's wood frame to the foundation or brace cripple walls for homes on raised foundations
  • Designate an easily accessible meeting place for family members
  • Keep emergency kits of food, water, medicine, first aid materials, flashlights, tools and clothing in several accessible locations

Homeowners with earthquake insurance should do the following when a major quake occurs:

  • Promptly notify their insurance agent and insurer
  • Photograph the damage to the home and property
  • Prepare an inventory of damaged personal property
  • Have their home professionally inspected for hidden damage
  • Timely submit your claims and proofs of loss

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