Earthquake Insurance: Who Needs it and How does it Work?
We live in California, and California is earthquake country. We know that earthquakes happen all the time. Some are small, but some are not. When an earthquake causes damage to our homes or personal property, what can we do?
First, let’s back up. What causes an earthquake? An earthquake is caused when two sides of a fault slip suddenly against each other. Faults are a fracture in the earth’s crust along which one side has moved relative to the other side. Faults can be small or hundreds of miles long.
The National Earthquake Information Center (U.S.) reports 12,000-14,000 earthquakes a year around the world, or 35 a day. Throughout the world, there are one “great” (magnitude 8.0 or more), 18 “major” (7.0-7.9), 120 ”large” (6.0-6.9) and 1,000 “moderate” (5.0-5.9) earthquakes in an average year. Each year California generally gets two or three earthquakes large enough to cause moderate damage to structures (magnitude 5.5 and higher, see www.conservation.ca.gov/index/earthquakes).
If you own a home, townhouse, or condominium you most likely have homeowner’s insurance. This policy will protect against perils such as wind, fire, hail, along with many other things, but what it doesn’t protect against is the damage due to an earthquake. Your homeowner’s insurance carrier should offer you earthquake insurance every two years and give you 30 days to respond, accept or deny.
Earthquake insurance covers some of the losses and damage that earthquakes can cause to your home, belongings, and other buildings on your property. The California Earthquake Authority (CEA) is one of many carriers that offer earthquake insurance. Their basic coverage is made up of three parts:
Part 1: Your dwelling coverage. This covers your home up to a certain amount, called the limit. The limit on your earthquake insurance is the same as the limit on your homeowners insurance (dwelling coverage). The deductible is usually 15% of the damage that occurred but you can buy a 10% deductible for a higher premium. The deductible does not need to be paid up front like most policies. For earthquake, the deductible can come out of the monies to indemnify the insured’s loss. If you rent, or own a condo, you do not need this coverage. You do not need this coverage because you are not responsible for the exterior walls or structure of the building. If you rent, you do not own the building at all. If you own a condo, the homeowners association affiliated with your condo will have to purchase earthquake insurance for all of its buildings.
Part 2: Your personal property coverage. This covers your property in your home, like furniture, televisions, computers, etc. This limit is usually low like 10% of your dwelling coverage. You are able to increase this limit up to $100,000.
Part 3: Additional living expense or loss of use. This only covers temporary and extra costs to live somewhere else while your area is evacuated or your home is being repaired. It can cover temporary rental of a home, apartment, or hotel room; restaurant meals; moving or storage; and laundry. This limit can be from $1,500-$25,000. You do not need this coverage if you do not live in the insured dwelling, such as a dwelling rented to others.
You may be able to purchase additional coverages such as building code upgrade coverage, debris removal, land-restoration and emergency repairs.
Do I need earthquake insurance if I am a renter? The answer is simple. Yes! Consider this: the area you are renting in could be evacuated or the residence you are renting could be unlivable and you will need to find a new place to live, like another apartment, home, or even a hotel. If you go to a hotel, you may not have a kitchen or a stove to cook on and you will have to eat out every day (which can cost a lot of money). Additionally, consider your belongings. The earthquake could have caused the building to collapse and all your electronics and furniture may be ruined. Earthquake insurance will pay for all of it up to your limits.
So who needs earthquake insurance? The coverage may vary depending on your own situation but, the answer is, everyone – especially those who live close to the big fault lines. Whether you’re a renter or a condo owner who just needs to protect their personal property, or a homeowner who needs to make sure they can rebuild their home after a major earthquake, earthquake insurance is an excellent way to protect yourself against losses.