Earthquake Insurance in California: Everything You Need to Know
People who live in the country’s most earthquake-prone state have insurance. But many people don’t read their insurance policies and will just later find out that earthquake insurance is not covered in their homeowners insurance policy.
Since 1985, state law has required an insurance house that offers homeowners insurance or renters insurance, also must offer earthquake insurance in California. In the beginning, premiums were affordable, and about 20% of the residents were insured.
However, in 1994, San Fernando Valley was hit by a quake where insurance providers were swamped with 300,000 residential claims — which is a total of about $12 billion. As a result, some insurers stopped offering earthquake insurance in California. At the same time, others raised the cost of premiums exponentially.
Here’s everything you should know about California earthquake insurance costs and other necessary information that will help you make the final decision.
California Earthquake Authority (CEA) Insurance
There are about 10% of residents of California who obtained earthquake insurance. Many people think that earthquake insurance is very expensive and complicated to become a necessity for homeowners. The California Earthquake Authority (CEA), a not-for-profit publicly managed, privately funded entity, clarifies that those perceptions are not correct.
The California Earthquake Authority gives priority to educating the homeowners and renters of California on how to stay safe in times of earthquakes and reduce the risk of damage and loss. They aim to help Californians be more aware of their earthquake risk and be prepared for the next big one.
What Does Earthquake Insurance Cover?
Standard home insurance in California doesn’t cover earthquake policy, so homeowners are advised to obtain stand-alone earthquake insurance to protect their home and cope with the loss in case of an earthquake.
Earthquake coverage can get expensive in earthquake-prone areas where quake deductibles are high, and there could be a chance where the loss amount can be higher than your claim.
Despite the negative impression, earthquake insurance is essential, especially if you live near a fault line. You should note that losing your home or the cost of damage to your home due to a quake is greater than the cost of buying earthquake insurance. Mortgage lenders may also require you to have quake coverage if you live in an earthquake risk area.
Most earthquake policies, if not stated explicitly, cover direct physical loss during a seismic event. It means one or more quakes or volcanic eruptions in a span of time. The aftershocks within the specified period are considered a seismic event. The insurance policies may vary depending on your insurance company and other factors, some of which is your property’s foundation or what it is made of.
Coverage for stone homes or other outlying masonry is not included in your policy, except if you have another insurance cover. Other external structures are excluded in your policy, such as detached garages, fences, landscapes, and pools.
The following is the standard earthquake coverage:
The Home’s Rebuild Cost
Unless it’s a masonry veneer, stucco is covered. Damage to land or walkways and driveways that inhibit your ability to access your house is protected.
Certain valuables, such as jewelry, electronics, furs, and collectibles are covered, but with special sub-limits.
- Emergency repairs to protect property from a residual earthquake
- Building code upgrades
- Land repair to stabilize and support your home
- Energy efficiency and safe replacement upgrades
Do I Need Earthquake Insurance?
Earthquake insurance is not required by law, and mortgage lenders may not mandate it unless you live in a high earthquake risk area. But you should consider it if your location is in an area prone to seismic activity. Below are the high-risk areas prone to earthquakes.
California, Alaska, Oregon, Washington, Nevada, and Hawaii are at high risk of earthquake damage and tremors. Tremors also become common in parts of Texas and Oklahoma. Do some research to make sure if you are in need of coverage. To determine if your property is in quake risk, some factors to consider are:
- The distance of your place to fault lines
- Construction type of your house
- The resistance of your house against earthquakes
Not all earthquakes leave colossal damage. Often, they are small and last only for a few seconds. But it takes only one to cause total structural damage to your house and the surrounding areas. If you live within 30 miles of a fault or active volcano, your earthquake insurance cost can be higher than living 100 miles away from the fault lines. However, if you don’t have insurance, your loss can be more significant if something terrible happens.
If you are not yet sure about getting quake insurance, you should consider how much is the cost of rebuilding your home if you are not covered. You should also consider that if the earthquake damages your home and you are still on the hook for paying your remaining mortgage, you have someone else to pay for your rent if you have to find another place to live while your home is repaired.
Homes made from brick, concrete, stone, and adobe are susceptible to quake damage as these materials are not flexible and were not made to withstand seismic events. If your home is made of these materials, you may want to consider obtaining earthquake insurance.
Earthquakes Are a Fact of Life in California
Earthquakes can happen at any time. But everyone knows that it can leave a lot of damage to your home and your personal property. You may even need to go out of your house while it undergoes some repairs. A homeowners policy does not cover damage due to natural disasters such as floods, earthquakes, and landslides. But earthquake insurance will help you pay for your losses.
- If you have a mortgage, you must acquire homeowners insurance and no need to buy quake insurance. If you have homeowners insurance in Los Angeles, California, the insurance house should also offer you earthquake insurance every other year. The offer should be in writing, with the right amount it covers, the deductible, and premium. You have 30 days to think if you want to accept the offer.
- There are limits on what earthquake insurance pays, but it can help you put a roof over your head and replace everything you’ve lost.
- Although you have renters insurance, having earthquake insurance can cover your belongings and help you pay for living somewhere else if your rented place needs repair.
- Suppose you are living in a condo. You can buy earthquake insurance to cover your belongings and to help you pay for living somewhere else when your condo is being repaired. Having this insurance will also help pay for your condo association assessment to restore your building.
- Suppose you live in a mobile home. Having earthquake insurance will cover damage to your home and belongings and help you pay for living somewhere else as your mobile home is getting repaired.
How Earthquake Insurance and Claims Work
Deductibles and premiums can be different to protect your house against loss due to fault damage. Earthquake insurance will cover your expenses up to the same limit as your homeowners insurance policy, and insurance holders pay a deductible between 10 to 20 percent of the limit.
Below is an example of how the coverage limits, renters insurance deductible, and insurance payouts work together for a homeowner whose home was totally destroyed by a quake. It is for a dwelling part of the policy, but the same math and logic work on other coverage types.
- Earthquake policy insurance: Coverage limit: $100,000, a 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
- The insurance company pays out up to the coverage limit, dollar for dollar; in this case, that’s the max of $100,000
- Homeowners’ responsibility and claim unpaid: $150,000 claim – $100,000 insurer payout = $50,000
In filing a claim for earthquake insurance, policyholders must inform their insurance company and let them know of the event and any apparent damages. Other faults leave no visible damage, so it cannot be easy to evaluate. So if your area is impacted, it might be better to have your home inspected, especially if it is an old house.
Factors Affecting the Cost of Earthquake Insurance
Residents and business owners of the Bay Area are always worried about earthquakes. Despite the fear of this natural occurrence and the fact that houses in California aren’t cheap, the majority of California homeowners don’t have earthquake insurance.
The current median sale price is around $400,000 or higher for dwellings located in counties that are considered high risk. Premiums for earthquake insurance range from $800 to $5,000 per year, and deductibles are about 15% of the total home value.
A personal finance site recently showed how much earthquake insurance costs across California; on average, the annual cost of insuring a single-family house can go up to $500,000. Among the most expensive places to get earthquake insurance in the whole state is in the East Bay. In Alameda, the cost of insurance for every thousand dollars in coverage is $5.50, or $2,744 for $500,000 in coverage. In Fremont, it has respective amounts of $5.30 and $2,627. The other 28 cities like Sacramento, Stockton, Modesto, and other inland cities have the least expensive earthquake insurance. It only costs $2.50 for every $1,000 in coverage.
The nine counties in the greater San Francisco Bay Area and the other three counties that overturn Santa Cruz, Monterey, and Salinas, all offer higher insurance rates.
Best Earthquake Insurance In California
An earthquake is not uncommon in many areas of the United States. But many homeowners are not covered when disaster happens because most homeowners insurance policies do not include earthquake damage.
Unlike flood insurance, an earthquake policy is not required by mortgage companies, even in high-risk areas of California. So you should determine if you should spend an extra amount on protecting your home and your other properties from a quake.
When people think of earthquakes, they come to associate them with California. However, only 10% of Californians carry earthquake insurance to protect their home from future disasters.
There are headlines of earthquakes happening in other states like Idaho, Washington, Oregon, or even Tennessee, all the time. Homeowners who want to protect their homes against these disastrous events can buy separate earthquake insurance policies.
To help you decide where to find the coverage you need, you may consider some guidance from the best earthquake insurance agents. Look for an insurance company that received an A+ from Better Business Bureau. This insurance company should feature coverage through the California Earthquake Authority.
One of the benefits of getting earthquake insurance from this insurance company is their ability to put all your insurance, including flood, home, auto, and umbrella, under them so that you can have a single point of contact.
You can also benefit from multi-policy discounts, including claim-free, customer loyalty, and a discount for retired seniors who are 55 and older. They give a free quote online 24/7, allowing you to manage your bill and make claims. An insurance company with a robust online presence and offers discounts is the best option for earthquake insurance.
Finally, there are different kinds of earthquakes or movements of the ground. Your house can suffer damage, and you can experience the ground’s shake even if your place is not located in the area near or on a fault line. The first thing you should consider before buying earthquake insurance is the risk you face from where you live.
Unlike homeowners insurance, earthquake insurance is not required and may still be the same in the coming years. Even banks require homeowners to buy flood insurance in flood-prone areas, but they don’t require those in quake zones to purchase earthquake insurance. However, the damage that it may cause can be enormous and more than the cost of monthly premiums, even if the event happens only once.
Is earthquake insurance worth it? Insurance is about protecting yourself and your investments. Earthquake insurance in California can be costly. But if you are not covered, you are placing yourself at risk of losing everything or risking your personal property to damage or become inhabitable — you may not be able to afford to repair or rebuild if a quake should happen, if you do not have any earthquake insurance.
If you found this article helpful, you might also be interested in finding out more about the best ways to protect your commercial property as well!
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