Is earthquake insurance worth it?
Fact-checked with HomeInsurance.com
Due to their ability to cause damage over widespread areas, earthquakes pose one of the most profound threats to homeowners. U.S. homeowners west of the Rocky Mountains are at the highest risk for earthquake damage, but earthquakes can happen in any region of the country.
People who own homes in California should take special note, as eight of the 10 earthquakes that caused the most damage over the last century happened in the Golden State. If you need to protect your home against these highly damaging events, earthquake insurance is an option. However, earthquake insurance comes with its own set of protections and limitations, so understanding this coverage is important before making a purchase.
What is earthquake insurance?
Earthquake insurance is designed to protect homeowners against economic loss that occurs during an earthquake. This insurance is generally limited to coverage for your home, personal belongings and expenses resulting from losing the ability to live in your home after an earthquake hits.
Although earthquake coverage availability varies by state, many companies offer earthquake insurance or earthquake coverage endorsements as part of homeowners insurance policies, including:
If you live in California, the California Earthquake Authority, or CEA, is a helpful resource to learn about the unique qualities of earthquake insurance in California.
Is earthquake insurance included in homeowners insurance?
Standard homeowners and renters insurance policies generally do not cover earthquake damage. To get earthquake coverage, you’ll either need to purchase an endorsement for your existing home insurance policy or find a provider who offers earthquake insurance as a separate policy.
Although standard home and renters insurance policies don’t cover earthquake damage, many of these policies commonly offer protection for fire damage that may occur following an earthquake.
Neither earthquake coverage nor homeowners insurance will pay for earthquake damage to your car, but if you have comprehensive coverage included on your auto insurance policy, it may pay for damages resulting from natural disasters, such as earthquakes.
What’s covered under earthquake insurance?
The specific coverage you’ll receive in your policy will depend on which provider you use for your earthquake insurance. But no matter who you use, it’s a good idea to obtain some protection for your dwelling, personal belongings and the expenses incurred from the dwelling’s loss of use. Here are the most common coverages included in basic earthquake insurance:
- Dwelling coverage: This coverage pays for damages to the structure of your home. The coverage commonly excludes protections for other structures on your property, such as pools, fencing and sheds, but coverage for those structures may be included elsewhere in your policy. Homes built with materials especially susceptible to earthquake damage may be ineligible for this coverage. Check with your provider to make sure your home will be covered.
- Personal property coverage: This coverage pays for damages to your belongings, such as furniture and electronics. There are usually limitations on the kinds of personal property this coverage will protect. If you want insurance for delicate items of high value such as fine arts, for example, you may need to purchase additional coverage.
- Additional living expenses/Loss of use coverage: This coverage pays for the costs associated with relocating if your home is not able to be lived in after an earthquake. This option may cover the cost of expenses such as housing, food, laundry and storage. Again, it’s important to check with your provider which expenses will be covered under your specific insurance policy in the event of an earthquake.
Deductibles in home insurance policies are commonly dollar amounts, such as $1,000. In contrast, many earthquake insurance policies and endorsements use deductibles that are a percentage of the total coverage limit. There’s no set deductible percentage, and they can range quite a bit — anywhere from 2% to 20%.
For example, if you have an earthquake policy that covers your dwelling for $300,000 with a 5% deductible, then you would have to pay $15,000 out of pocket for your deductible. It’s important to keep this in mind when budgeting for your insurance needs. As a general rule, the higher the deductible, the lower the monthly premium, but the more you will need to pay out of pocket in the event of a claim. Be sure to choose a deductible level that you can afford.
Another important concern when budgeting is deciding how much earthquake insurance to buy. It’s usually best to insure the dwelling for how much it would cost to rebuild it, rather than the dwelling’s current market value. Keep in mind that the replacement cost could be much higher than the dwelling’s current value.
Do I need earthquake insurance?
If you own a home located in an area that’s prone to earthquakes, it’s a good idea to look into earthquake insurance. Policyholders living in California should keep in mind that the Golden State has more damage-causing earthquakes than any other state in the union.
However, earthquake insurance can be expensive if you own a home in an earthquake-prone region. Additionally, the deductibles can be much higher than other forms of insurance. To make sure you understand the benefits you’ll receive from an earthquake policy, be sure to talk to your agent or insurance provider about how much you’ll be paying for the premium, what the limits of your coverage are and what the deductibles are for each coverage.
If you don’t have enough money to rebuild your home or at least pay for substantial repairs in the event of an earthquake, obtaining earthquake insurance can protect you from financial hardship. If you live in a low-risk area or have a home that the insurance company decides can withstand earthquake damage fairly well, then you may pay a lower premium than you would in a high-risk area.
- Earthquake insurance is generally not covered in a standard homeowners insurance policy.
- Some insurance providers may offer an earthquake endorsement for your homeowners insurance for an additional cost, or you may need to purchase a separate earthquake policy.
- Earthquake deductibles are usually calculated as a percentage rather than as a set dollar amount.
While not all areas of the U.S. are prone to earthquake damage, knowing your options when it comes to earthquake insurance can help you make an informed decision. How high your premium will be largely depends on the earthquake risk in your area and your desired coverage amount, as well as the building materials used for the home. There are strict limitations on what kind of expenses earthquake insurance will pay for, so pay close attention to the details of your policy or endorsement to make sure you have adequate protection in the event of an earthquake.