With the huge earthquake that struck California last week, you might be thinking to yourself, "should I get earthquake insurance?"
And you might be wondering the basics - how much does it costs, what does it cover, will it even help me in the case of an earthquake, and more.
It's important to note that earthquake insurance is an additional product that you purchase beyond your basic homeowners or renters insurance policy. And depending on where you live (specifically what state you live in), your policy may vary.
Here's what you need to know about earthquake insurance, how it works, and where to buy it.
What Is Earthquake Insurance?
Earthquake insurance is a supplemental insurance policy to your homeowners (or renters, or condo) insurance that covers your home in the event of an earthquake.
Earthquake insurance is different than homeowners insurance. If you have a mortgage on your home, you are required by your lender to maintain a specific level of homeowners insurance - but you're not required in any states to have earthquake insurance.
But, if there is an earthquake and your home (or belongings) suffer damage as a result, your homeowners policy won't cover it. As such, if you live in an area that's prone to earthquakes, you should consider an earthquake insurance policy.
What Does It Cover?
There are three main aspects that earthquake insurance covers - and they may not all apply unless you're a homeowner.
Earthquake insurances covers:
- Your Dwelling - this is the same amount of coverage as your homeowners insurance policy
- Your Personal Belongings - this is the value of your stuff (like furniture, etc)
- Loss Of Use - this is the coverage that would pay for you to live elsewhere if your home isn't livable after an earthquake
If you're a renter, you would specifically look for a policy that covers your personal belongings and loss of use, as your landlord would be responsible for the dwelling.
Some policies also have extra coverages available - such as "code upgrade" coverage which would help pay for the costs of bringing your property up to modern day building codes if you had to rebuild.
What Does It Not Cover?
It's just as important to understand what earthquake insurance does NOT cover when thinking about purchasing a policy.
First, most earthquake policies don't cover landscaping, pools, fences, masonry, or separate buildings (like sheds, etc.). You can sometimes buy additional coverages for these.
Second, when it comes to personal property, some breakables are not covered (like china) unless you purchase additional "breakables" coverage. Other property, like vehicles that are garaged and damaged in an earthquake, are also not covered. Vehicles may be covered by a comprehensive auto insurance policy.
Finally, there are some other things that most earthquake insurance doesn't cover. This includes damage by fire or flooding after an earthquake. Earthquake insurance also doesn't cover damage to your land (such as erosion, sinkholes, etc).
Important Note: California law says that both homeowners and renters insurance must cover fire damage that is caused by or follows an earthquake. Mileage may vary in other states.
How Much Does Earthquake Insurance Cost?
Earthquake insurance varies greatly in cost based on a variety of factors - including coverage amounts for each type of coverage, the value of your dwelling, costs to rebuild, area, and deductibles.
On the low end, earthquake insurance premiums can be as low as $10 per month, and as high as $100 per month or more. It all depends on the coverage selected.
The California Earthquake Authority has a great cost calculator to help you figure out how much it would cost for you (if you live in CA).
When Is It Worth It To Buy Earthquake Insurance?
It can be tough to know when it is worthwhile to buy earthquake insurance. Just like any insurance product, you're buying coverage in hopes you never need to use it.
When considering buying earthquake insurance, there are a few factors to consider:
- Can you afford the premium?
- Can you afford the deductible? (5% of your home value is usually the lowest deductible offered)
- Can you afford to repair or rebuild yourself?
Once you've answered those basic questions, you need to also ask yourself if you have enough equity in your home to make it worthwhile.
For example, if you only have 5% equity in your home, it might make more sense to walk away from your house than pay to rebuild. Yes, you would damage your credit in the short term, but rebuilding after a catastrophic event could be more costly than your credit score.
What States Offer It?
Every state offers some type of earthquake insurance policy - but the policies vary greatly and are determined by risk.
The states with the biggest risk of a large earthquake (magnitude 5.0 or higher) are:
- South Carolina
But, remember, every state has some type of earthquake risk.
Where To Buy It?
Even though earthquake insurance is offered by various state insurance agencies, you would still buy your earthquake insurance policy through the same company that offers your homeowners insurance. In fact, most states require your homeowners insurance company to remind you about the ability to purchase earthquake insurance.
The same is true if you're a renter - you would contact your renters insurance company and ask about getting an earthquake policy to go with your current insurance.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.