Earthquake insurance

Earthquakes can occur at any time and in any location. If you do not have earthquake insurance, you may have to pay for your losses out of pocket. Ordinary homeowner's insurance does not typically cover earthquake losses, with many insurance companies requiring an additional policy endorsement or rider for earthquake damage.

A pair of twin earthquakes struck California in 2019, causing nearly $40 million in damage to homeowners. The Anchorage earthquake in Alaska in 2018 was another costly disaster, with the 7.0-magnitude quake resulting in over 10,500 insurance claims totaling $130 million in damages. That's a substantial sum of money. This is what you need to know about earthquake insurance to protect yourself and your family in the event of a disaster.

What is earthquake insurance?

The first thing you should know is that earthquakes are not covered by your standard homeowners insurance policy. The best it can do is cover the costs of fires that frequently occur after earthquakes. Still, you'll need an additional rider, or endorsement, on your policy to cover damage caused by the seismic activity itself.

This endorsement will provide coverage for direct damage caused by specific seismic events, such as a volcano or earthquake. The policy will define what constitutes a single event, typically 72 hours. The endorsement will cover damage to your home and, depending on the specifics of your policy, other structures such as a detached garage or pool. You'll also be covered for personal property up to the limit you specify when you buy the policy.

Earthquake home insurance typically includes emergency repairs to prevent further damage, necessary building code upgrades, and required land stabilization. Loss of use coverage for additional housing expenses while your home is being repaired is also included in earthquake coverage.

As previously stated, fire damage is covered by your standard homeowners policy, but water damage is only covered if you also have flood insurance, even if caused by an earthquake. Earthquake insurance will not cover damage to your land, except where it supports your house, or to your vehicle, which should be covered if you have comprehensive car insurance.

Do I need earthquake insurance?

Most lenders do not require earthquake insurance in the same way that they do homeowner's insurance. That doesn't mean you shouldn't have it. According to the National Association of Insurance Commissioners (NAIC), nearly half of all Americans are vulnerable to earthquake damage. That means a risk assessment is essential for the vast majority of us.

A thorough assessment of your risk level will include the following:

• The proximity of your home to a major fault line: A major fault line or other source of seismic activity, such as fracking, will increase your risk significantly.
• Materials used to construct your home: Masonry-built homes, as well as framed homes with crawl spaces and multi-story dwellings, are more vulnerable to earthquake damage.
• Your home’s earthquake resistance level: Newer homes are typically built to withstand earthquake activity, especially in earthquake-prone areas.

The table below summarizes recent earthquake history in the 16 states identified by the US Geological Survey as having the highest risk of experiencing a major seismic event in the next 50 years.

Recorded earthquakes (magnitude 3 or greater) in the 16 highest-risk U.S. States, 2010-2015

Combine historical data with predictive maps and expert assessments to better understand your risk. When it comes to earthquakes, past performance is not always a good predictor of future events. Some states, such as California, are known to have a high active earthquake risk. Even states like Texas and Oklahoma are seeing an increase in fracking activity, so risk levels are rising in those areas.

Understand the rates and deductibles

Your insurance company determines the rate you pay for earthquake insurance based on specific data about your home and location, just as it does for your homeowners policy. According to the NAIC, rate factors include the following:

• The proximity of your home to a seismic zone
• The age of your house
• Your foundation and building style (masonry will be more expensive to insure)
• The deductible you select
• The cost of rebuilding your home
• Any additional protection (such as secondary structures)

Your coverage should, like your standard policy, insure the total rebuild cost of your home, also known as your dwelling coverage limit or replacement cost coverage. This is distinct from the sale or appraisal value of your home. It takes into account the costs of construction materials and labor if your home needs to be completely rebuilt.

The risk of an earthquake will have the greatest impact on your premium. For example, a resident of New Madrid County, Missouri, which is located directly on a major fault, would pay 328 percent more than a resident of Jackson County, Missouri, which is located far from the New Madrid fault line and is home to Kansas City.

Your deductible is also an important factor in your rate, even more so than with a traditional homeowners policy. The deductible on your standard policy is predetermined and can range from $250 to several thousand dollars. However, most earthquake insurance deductibles are expressed as a percentage of the rebuild cost, typically between 10% and 15% of the total rebuild value of the home, so on a $300,000 home, you could face a deductible of up to $45,000.

Even if your home sustains enough damage to warrant a full rebuild, you may be liable for the entire repair bill, even if you have insurance. That is just for the house; you must also consider your personal property and protection on any other structures.

How much does earthquake insurance cost?

The cost of earthquake insurance varies greatly depending on where you live and other factors. As you might expect, the higher your premium, the closer you are to a major fault or fracking site. In states with little seismic activity, you may pay between $100 and $300 per year, but in states with more frequent tremors, premiums may be in the four digits.

If you live in California, which is prone to earthquakes, the California Earthquake Authority can help you figure out how much earthquake insurance you need. With a $300,000 two-story home on the market in Sacramento, for example, you could expect to pay $159 per year for earthquake insurance, with a 15% dwelling deductible. A comparable-priced home in Brawley, in the more active southern part of the state, would, on the other hand, cost $1320 per year for the same coverage.

Is earthquake insurance worth it?

Everyone does not require earthquake insurance. The risk of an earthquake or volcanic event is almost non-existent in some parts of the United States. When compared to the limitations of your coverage and the significant deductible, even a low annual premium may not be worth it.

However, many Americans live in high- or moderate-risk areas, and these areas are expanding as fracking becomes more common in places like Oklahoma. It only takes one major event in these areas to cause significant, if not catastrophic, damage to your home. Consider the cost of replacing your home in the event of an earthquake. Could you really afford it? Furthermore, are you able to cover the costs of temporary housing or potential property damage? If you live in a high-risk area, your premiums may be high, but they will not be higher than your replacement costs.

To determine whether earthquake insurance is worthwhile for you, consider the costs and seek a thorough risk assessment.

Frequently asked questions

Does homeowners insurance cover earthquake damage?

In general, no, though it may cover the costs of fire damage caused by an earthquake. A separate rider on your homeowners policy will be required to provide true coverage in the event of seismic activity.

Why are earthquake deductibles so high?

Earthquake deductibles are high because the damage caused by them is typically catastrophic, posing a higher risk to insurers. To cover costs, they must raise deductibles.

Do you need earthquake insurance if you don’t live on a fault line?

You might want to think about it. Earthquakes are also a possibility in mine areas and areas where hydraulic fracturing (fracking) is practiced. This practice has resulted in an increase in earthquakes in areas where there were previously none.

Does my earthquake insurance cover flooding?

No. If you live in a flood zone or are concerned about flooding after a natural disaster, you should look into flood insurance. Most insurance companies or FEMA's National Flood Insurance Program offer this.