July 6th, 2015 at 10:00 am

Earthquake insurance

You keep saying you’re going to buy earthquake insurance for your home. But you haven’t done it yet. What are you waiting for? The Big One?

There’s really no reason to wait any longer. According to the California Earthquake Authority (CEA)–the quasi-government agency that underwrites the majority of our state’s residential quake policies–premiums have never been lower. The CEA has reduced its rates three times in recent years, by a total of 45 percent.

“It’s not a matter of if there will be a big earthquake, but when,” said Michelle Marquez, Vice President of Sales for PCG Agencies Inc., the managing partner of HomeServices Insurance Agency. “It can be financially devastating if an earthquake decimates your home. How are you going to recoup that loss? That’s where earthquake insurance comes in.”

While earthquake policies can be purchased any time, an alert real estate agent can help direct homebuyers to obtain coverage early in the process.

“Agents and managers contact us regularly for guidance and recommendations with earthquake and homeowners insurance policy questions,” Marquez said.

Got questions?
We’ve anticipated them. Here they are, along with some answers:

“Do I need earthquake insurance?”
That’s the most common question homeowners and buyers ask insurance agents each time a temblor makes headlines. The answer in almost every instance is yes.

No one needs to tell Californians that life along the San Andreas Fault comes with the possibility of a major earthquake. But our state isn’t the only one. According to the American Red Cross, 45 U.S. states and territories are at moderate to very high risk of earthquakes, and they occur in every region of the country.

“What does earthquake insurance cover?”
That’s the second-most-asked question. The simple answer is: structural damage, personal property, and loss of use (living expenses if you need to move out while repairs are conducted). “Remember, your homeowners policy doesn’t cover these losses if an earthquake affects your residence,” Marquez said. “That’s why an earthquake policy is good to have.”

“How much does it cost?”
Earthquake insurance can be surprisingly affordable. It all depends on your home’s size, style (single-family vs. condo) construction type (wood-frame vs. steel, brick vs. adobe), and other factors such as soil type and proximity to known faults. The underwriter will have access to that data when your insurance agent submits the home for a premium quote.

To determine the minimum amount of insurance you should consider, your carrier estimates what it might cost to rebuild your home in preparation of a total loss after an earthquake.

Here’s a recent premium breakdown for a four-bedroom, three-bathroom, 1,640-square-foot condo near San Diego, underwritten by the CEA.

Coverage Limit Deductible
Building Property $25,000 $3,750
Personal Property $100,000 $750
Loss of Use $25,000 None
Loss Assessment by HOA $50,000 $7,500
 Total annual premium: $215

Of course, larger homes will have higher premiums.

 “What about deductibles?”
They vary as well, regardless of home value, typically ranging from 10 to 25 percent. You can decide the deductible you want at time of purchase. The home must sustain damage above the deductible before the policy kicks in, Marquez said. For example, if the home is insured for $300,000 and the deductible is 10 percent, insurance covers any damages over $30,000.

“Where do I buy earthquake insurance?”
As mentioned above, your real estate agent can help you purchase coverage through his or her brokerage’s insurance partner. Or you can buy directly from any insurance carrier that participates in the CEA program. Some homeowners with very high-value properties elect to purchase from their high-value residential policy carrier. These carriers underwrite their own policies and can offer broader coverage choices compared to the CEA. There are also standalone specialty insurers that offer broader coverage that comes with higher premiums.

“What if I need to file a claim?”
If you are displaced by an earthquake, contact your agent or the carrier’s claims department immediately, Marquez said. A catastrophe damage-assessment team will be dispatched as soon as possible. “They usually will start cutting checks right away to pay for temporary accommodations and additional living expenses,” she said. “For repairs or rebuilding, they might have preferred contractors they deal with and can recommend to you. But remember, your costs will only go to the insured limits and not above it with most carriers.”

Hopefully, we’ve answered many of your questions. Here are some final thoughts and advice from Marquez:

Additional resources:

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