Folks in Napa are just beginning to assess the costs of rebuilding due to the devastation caused by Sunday’s earthquake and for some hindsight will reveal as vividly as the damage suffered, that the need for earthquake insurance is a necessity, despite figures that indicate the majority of Californians don’t have earthquake insurance.
Californians by virtue of where we live, according to the U.S. Geological survey are 70 percent more likely to experience a damaging earthquake, with a magnitude of 6.7 or higher. That probability alone makes a serious argument for the necessity of earthquake insurance to protect what is traditionally your largest investment, your home.
Basic homeowner’s insurance does not cover the cost of damage related to earthquakes. If you are leasing or renting a home and the home’s owner has earthquake insurance, that doesn’t mean you are covered. You still need your own earthquake insurance policy to be covered against damages. There are very affordable rates offered for renter’s and mobile homeowners.
How much earthquake insurance costs, the annual premiums, deductibles, have been a source of great myth and misunderstanding and one of the leading reasons that despite having a 70 percent chance of experiencing a damaging earthquake, only about 11 percent of Californians purchase earthquake insurance.
The factors that impact the cost of earthquake insurance are the price of your home, how it’s built and where it’s located. For instance, annual premiums for a two story home generally will cost more than those of a single story home in the same neighborhood by virtue of there being more risk for collapse. The soil and composition of the earth or foundation your home is built on is a factor. The more solid the area, the lower the premium. You can calculate the costs of annual premiums for earthquake insurance by going to www.californiaearthquakeauthority.com and simply input your zip code and cost of your home in the premium calculator it will show you an approximate annual premium.
"Deductible" is the most frightening word in insurance and the deductibles for earthquake insurance are expensive, however we’re talking about earthquakes, not car accidents so how your deductible is applied is vastly different than a normal claim.
First, deductibles range from 10 percent to 20 percent depending on whether you purchase earthquake insurance from the California Earthquake Authority or a private insurance company. The higher the premium you decide to pay, the lower your deductible.
Unlike in auto insurance, where in an accident, you pay your deductible first and then may receive a check from insurance for the rest of your claim, earthquake insurance deductibles work differently. The deductible in earthquake insurance is subtracted from the amount of damages you’re awarded. For instance, the damage to your home is calculated to be $100,000, the check you would receive at a 15 percent deductible would be $85,000, and while it may not cover all your losses, it’s money to begin rebuilding.
Without earthquake insurance, you risk essentially everything. Again, say your home is a total loss and you have no earthquake insurance, unless your home is paid for, you still owe a mortgage on a home that is uninhabitable, while also needing to pay for a new place to live.
Earthquake insurance is at the very least worthy of investigation and consideration, if you own a business, home or lease property here in California. It offers a means to protect what is often your largest investment, or items dearest too you should a damaging earthquake hit.
Does it cost? Yes. Are deductibles high? Yes. What you’re buying is peace of mind, knowing you can rebuild, or pay off a mortgage and replace losses, all out of pocket expenses without earthquake insurance.