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Earthquake Insurance

Earthquake InsuranceMost people are familiar with homeowners insurance covering a private residential structure from accidental damage and fire.

However, many think that such insurance coverage is completely comprehensive for any kind of damage, which is not the case. The two big areas not covered are flood and earthquake damage.

Instead, homeowners in affected areas need to secure a separate policy for that kind of damage.

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Earthquake insurance is very similar to regular homeowners residential coverage with regards to protection. The policyholder pays a premium in exchange for financial coverage. The coverage is broken into two components: structural protection and personal property protection. That said, in most cases earthquake insurance is entirely optional for many property owners.

How Earthquake Coverage is Different

Because the damage can be extensive during an earthquake, most policies are limited by maximum dollar amount in terms of the repairs or replacements that will be covered in an approved claim. Additionally, insurers don’t expected frequent and regular claims for these kinds of policies and they don’t want to be paying out for small issues. So the deductibles involved that the policyholder must pay out of pocket on a claim tends to be fairly high.

A typical deductible for an earthquake insurance policy ranges from $1,000 to $5,000.

For more information on the wisdom and workings of this type of coverage read this New York Times article on the subject.

Your Earthquake Insurance

On the other hand, the annual premium charged in these policies tends to be between $200 and $400 a year, which is fairly low compared to a regular homeowners policy. The specific amount charged will depend on the structure, location, and proximity to known earthquake faults and zones. For instance, a brick building in San Francisco, California, will likely have a very high premium versus a wood and stucco home in Walla Walla, Washington.

Covering Damage

Figuring out the potential of damage loss for an insurer is a full-time job. The amounts that insurers might be responsible for is determined by using a damage ratio that compares dollar damage reported to an affected building’s original market value.

My Earthquake InsuranceAdditionally, insurers also utilize computer program named HAZUS that helps project loss estimates. To learn how HAZUS was used in a real life earthquake situation you can go to this article from the Hawaii Volcano Observatory.

The risk for the insurer, however, is that if the company insures too many homes in a high-risk area, it could be hit with a significant amount of claims for high-value damage all at the same time. This occurred in the 1990s to insurers that concentrated on homes in Florida and two hurricanes in one year devastated the area and the insurance industry. So while insurers want earthquake policy business, they also want to spread out their potential exposure so to minimize costs.

In some states, earthquake insurance is a critical issue. California, for example, has a high percentage of population in earthquake-prone areas. As a result, many in such zones purchase or need coverage to protect their homes and belongings.

Due to such a concentration of homes and the high risk of taking on too many homes in one earthquake-prone area, some insurers have refused to provide coverage. This was the case in 1994 after the Northridge earthquake in the Los Angeles area caused significant, concentrated damage. Since the state required the policy to be offered if other homeowners insurance was offered, many companies stopped doing business in California altogether.

To mitigate this problem of non-coverage California ended up creating its own government agency that provided insurance policies to California homeowners in affected zones. Learn more about the California Earthquake Authority (CEA) here.

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Excluded Structures

Not every residential structure is provided earthquake insurance. In fact many insurers consider some residential structures too risky. These include high-density homes such as apartments and condominiums. To make matters worse, while tenants can get coverage with renters insurance, such policies also don’t cover earthquake damage. They are intended more for theft loss than natural disaster.

Earthquake Insurance Exclusions

Earthquakes Aren’t Just in California

Because of the frequency of earthquakes in the western state and the rarity of them elsewhere, many think that shaking ground disasters only occur in the Golden State. The fact is there are earthquake faults all over the U.S. They just don’t trigger earthquakes that often, but when they do it tends to be big and surprising.

For example, those living in a zone stretching from Memphis, Tennessee to the bottom of Illinois could find themselves being shaken pretty hard. The last time an earthquake hit the area it shifted the path of the Mississippi River. So it is plausible that earthquake insurance could be a viable coverage there as well. Scientific study is expecting a big shaker at least once within the next 50 years in the respective zone.

Earthquake Coverage Specifics

Earthquake Insurance CoverageThere are certain components a consumer should be aware of in any earthquake policy they consider:

  • Coverage: Ideally, a good earthquake coverage should extend to both the residential structure as well as the contents inside. Otherwise, a policyholder could have a protected house with a lot of damage to personal property, including his car.
  • Cost of Living: Another aspect is the cost of living when a structure is being repaired. Will the policy cover rent and living costs elsewhere as repairs take place? Not every policy includes this factor automatically.
  • Caps and Exclusion: In some cases policies include specific terms that exclude or put a cap on how much damage or type of damage the insurer will cover. Policyholders need to pay special attention to the language in these agreements before signing them. Otherwise, it could result in a bad surprise when a claim is filed.
  • Deductible: Additionally, consumers should have a good idea of what deductible is involved as well. Lots of personal property damage can occur in an earthquake that may not exceed a deductible, especially if it is $5,000 or higher.

Earthquake Insurance For HomeAs with any kind of insurance product, consumers should research and compare insurance coverage products before making a firm decision on whom to go with. Even with earthquake insurance there can be quite a bit of policy premium variation from one company to another.

After all, insurance companies are private businesses with the goal of making a profit. However, with some good snooping and comparison work, a consumer can usually find a viable policy that works for his specific needs and general earthquake protection.

To get started comparing policy offers now use simply type your 5 digit ZIP code into the FREE insurance rates tool!

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