Is Earthquake insurance worth the cost?
In California, earthquakes are a reality. However, recent estimates by the California Earthquake Authority show that only 10% of California households carry this coverage. Earthquake coverage is not part of a standard homeowner, condo, or renter policy and needs to be purchased separately.
One common belief is that the government will step in and provide financial assistance after a major earthquake. While there may be assistance available through FEMA, it will likely be low interest loans. That means you will still have to pay back all the money you borrow. Are you in a financial position to continue paying your mortgage PLUS the amount owed back to the government, PLUS the amount pay to live somewhere else while your home is being repaired? This could be financially devastating for you and your family.
Another common belief is that the deductibles are too high. This is a legitimate concern as earthquake deductibles are based on a percentage of the rebuild cost of your home. For example, if you home is insured for $500,000 and you have a 15% deductible on your earthquake policy, the deductible for this coverage will be $75,000. This does not mean you have to come up with $75,000 first before the policy pays. However, it does mean that once the value of the claim to repair your home is determined, $75,000 will be subtracted from that estimate and you would receive the difference. It will be easier to overcome the deductible, than the full amount of damage you could be facing. Additionally, some carriers offer important coverages (like the cost to live elsewhere during repairs) without a deductible.
Our belief is the more equity you have in your home, the more you need to consider earthquake coverage. There are now several insurance carriers offering earthquake coverage with different deductible options, flexibility to choose coverage levels, and different acceptability guidelines. All of these improve the chances of finding a policy to meet your needs.
We can help you Evaluate your earthquake options; Educate you on how each will work for you; and Explain it in easy to understand terms so that you can make an informed choice.
Our next article will address why earthquake insurance is also very important for condo unit owners.