Is earthquake insurance worth it?

Earthquakes aren’t covered by homeowners insurance, so if you live in an area prone to seismic activity, it may be worth buying earthquake insurance to protect your home and personal belongings from quake damage.

Pat Howard 1600

Pat Howard

Published January 14, 2020

KEY TAKEAWAYS

  • Since homeowners insurance doesn’t cover damage caused by earthquakes or volcanoes, you’ll need earthquake insurance to cover you home and personal belongings from those perils

  • Earthquake insurance typically isn’t required by mortgage lenders, but it’s a good idea if you live in a high earthquake risk area

  • In California, every $100,000 of coverage will cost you anywhere from $500-$1,000 in average annual premiums

Earthquakes aren’t covered under a standard home insurance policy, so you’ll need to add earthquake coverage to your policy or buy stand-alone earthquake insurance to protect your home from quake damage. But coverage can get pretty expensive in earthquake-prone areas, and earthquake insurance deductibles are typically high and have a tendency to exceed the loss amount that you’re claiming.

Despite the negatives, earthquake insurance is essential if you live near an active fault. You should also keep in mind that the cost of losing your home to a quake and not having insurance is far greater than the cost of earthquake insurance itself. An earthquake policy may also be required by your mortgage lender depending on where you live and your home’s earthquake risk.

In this article:

Do you need earthquake insurance?

Earthquake insurance isn’t required by law, and mortgage lenders usually won’t require it unless your home is in a high earthquake risk area. But you should still consider coverage if you live in an area that’s prone to seismic activity. If you live in any of the high-risk areas indicated below, you should consider getting earthquake coverage.

USGS seismic hazards map

Seismic hazards map courtesy of the U.S. Geological Survey

Homes in certain parts of California, Alaska, Oregon, Washington, Nevada, and Hawaii are at particularly high risk of earthquake damage, and tremors are also becoming common in parts of Texas and Oklahoma where fracking is common.

Be sure to do a little digging and see if you need coverage. The biggest factors in determining a property’s earthquake risk are:

  • Your home’s distances to a fault line
  • Your home’s construction type (if it’s a stone or brick home, it has a higher probability of being damaged by an earthquake)
  • How earthquake-resistant your home is

What kind of coverage are you getting?

Most earthquake policies or endorsements — unless explicitly stated otherwise — only cover direct physical loss from an earthquake during its seismic event, meaning one or more earthquakes or volcanic eruptions in a period of time specified by your insurer. The aftershocks that occur in the wake of an earthquake within the specified time period count toward the seismic event.

The extent of your earthquake coverage will vary depending on your insurer and factors like the construction-type of your property. Coverage for brick homes or other exterior masonry, for example, is typically excluded from your policy unless you have additional coverage.

Other structures on your property (like detached garages and fences), landscaping, and pools are also typically excluded from earthquake insurance unless you add an endorsement or rider to the policy.

You can expect a standard earthquake policy to cover:

The home’s rebuild cost

Unless it’s masonry veneer, although stucco is usually covered. Additionally, damage to land, walkways, and driveways that directly inhibits your ability to access the home is also covered.

Personal property

With special sublimits for certain types of valuables, like jewelry, electronics, furs, and collectibles.

Additional living expenses

Better known in home insurance as loss-of-use coverage — this portion of your policy covers your additional living expenses for “the shortest time reasonably needed,” according to a California Earthquake Authority policy. If you rent your home out to others and it’s damaged, you may also be reimbursed for lost rental income.

Additional coverages

Earthquake insurance also covers the following:

  • Emergency repairs to protect your property from residual earthquake damage and tremors
  • Building code upgrades
  • Land repair that’s necessary for stabilizing or supporting your home
  • Energy efficiency and safety replacement upgrades to damaged property (meaning if you incur a loss, you’ll be reimbursed the replacement cost of energy-efficient home upgrades up to a certain limit)
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What perils you’re insured against

As we discussed earlier, earthquake insurance covers your home from seismic damage, which means both earthquake and volcanic-related losses. It also covers a fair amount of extenuating circumstances. For example, earthquake insurance covers water damage if an earthquake causes your plumbing to burst and water damages your personal belongings.

The table below details what insurance-type covers certain costly perils. As you can see, several perils are covered through your homeowners insurance through an additional coverage endorsement.

Covered by home insuranceCovered by flood insuranceCovered by earthquake insuranceMay be covered by home insurance endorsement
Fires Already covered by home insurance
Floods
Mudslides à
Landslides
Sinkholes
Earthquakes
Volcanic eruptions
Water damage√‡√‡

Varies by insurer and the efficient proximate cause of the mudslideExcept for water damage from floods and seeping groundwater

When earthquake insurance is worth it

Not all earthquakes cause enormous damage. In fact, most earthquakes are small and last only a few seconds. But all it takes is one to cause complete structural carnage to your home and surrounding areas.

If you live within, say, 30 miles of an active fault or volcano, your insurance costs may be higher than if you live 100 miles away from one. But the cost of not having insurance will prove to be far greater if something bad happens.

If you’re on the fence about earthquake insurance, you should ask yourself how much it would cost to rebuild your home without insurance. You should also keep in mind that, even if your home is destroyed by an earthquake, you’re still on the hook for any remaining mortgage payments you have left.

Brick, adobe, concrete, and stone homes are especially susceptible to incurring earthquake damage as they’re inflexible and not built to withstand seismic events. If you live in a brick or stone home, you’ll especially want to consider earthquake insurance. As we touched on earlier, in order to get coverage for masonry veneer, you’ll need to add an endorsement to a standard quake policy, or opt for a more robust plan.

When earthquake insurance isn’t worth it

Earthquake insurance might not seem worth it for a few reasons:

  • It’s pretty limited — it only covers earthquakes and volcanoes and very little proximate damage related to those disasters
  • It’s a lot of money for something that happens as rarely as a major earthquake or volcanic eruption

The other issue with earthquake insurance is the deductibles — your out-of-pocket expenses before your insurance reimburses you for a loss. Earthquake deductibles are typically anywhere from 5–25% of your home’s insured value, which can be super high if your home is insured for, say, $300,000. That means if your home incurs a $75,000 loss and you have a 20% deductible, you’ll have to pay the first $60,000 (300,000 x 0.20) before your insurance company covers the remaining $15,000.

Now say the earthquake damage to your home amounted to $50,000. In that case, you wouldn’t even be able to file a claim since your deductible ($60,000) exceeded the loss amount.

How earthquake insurance rates are determined

Like home insurance, your earthquake insurance rates are largely determined by your home’s insured value, or your dwelling coverage limit. Your dwelling limit should be equal to your home’s rebuild cost — not its sale price or appraised value, but the amount that it’d cost to rebuild your home at current construction and labor prices.

In California, every $100,000 of coverage will cost you $500 to $1,000 in annual premium, so a larger home is naturally going to have much higher rates than a small or mid-sized home. Other factors that go into determining your rates are:

  • Your home’s age and location
  • Your home’s foundation (slab or raised)
  • Your deductible (the higher your deductible, the lower your rates)
  • Any additional coverages or endorsements
  • The construction type of your home (frame or masonry)

When we ran a sample quote for earthquake insurance through the California Department of Insurance, we found that masonry homes cost a staggering $2,000 more to insure annually than frame homes.

To keep your rates down, check with your insurance provider to see what kind of discounts or credits are available. The California Earthquake Authority, for example, offers discounts of up to 20% for frame-constructed homes that were built before 1960 if they’re retrofitted with earthquake-proof structural features like foundation bolting and cripple wall bracing. If you own a newer home, your rates will already be lower since it’s built up to code.

Understanding earthquake deductibles

As we mentioned a bit ago, your earthquake deductibles are a percentage of your home’s insured value. You typically have to pay separate deductibles for the various parts of your policy — like your personal property coverage and other structures coverage (with an endorsement). Your additional living expenses typically aren’t subject to a deductible.

The table below illustrates how deductibles work in regards to your coverage limits:

Dwelling coverageOther structures coveragePersonal property coverageTotal
Coverage limits$200,000$20,000$100,000$320,000
Deductible25%25%25%
Damages$180,000$15,000$110,000$305,000
Amount you’re responsible for$50,0005,000$35,000 (deductible plus additional $10k out of pocket)$90,000
Amount insurer is responsible for$130,000$10,000$75,000$215,000

That means if you incur $305,000 in losses on property that’s insured for $320,000, you may have to pay as much as $90,000 out of pocket if you’re responsible for the separate 25% deductibles. This works differently than dollar amount deductible with homeowners insurance where you’re typically only responsible for your single deductible.

If you can’t afford to pay your deductible and you live in a FEMA-designated “disaster area”, you may be able to get financial assistance from FEMA or the California Department of Insurance. You may also be able to take out a low-interest loan with the Small Business Administration (SBA), which offers disaster loans to homeowners as well as small business owners.

How to get earthquake insurance

To get earthquake insurance, check with your home insurance company to see if you can simply add an endorsement onto your standard (HO-3) policy. Endorsements are valuable in that you may be able to file one claim involving multiple sections of your policy. So if your home suffers fire damage, water damage, and earthquake damage, you’re submitting one claim to a single insurance company.

If your insurer doesn’t offer an earthquake policy or endorsement, check with your home insurance agent or state insurance department website for a list of carriers or surplus or excess line companies who offer earthquake coverage. Particularly in California, insurance companies that sell homeowners insurance are required per state regulations to offer earthquake insurance as well.

California insurers offer earthquake insurance via the California Earthquake Authority (CEA), a privately funded organization that sells earthquake insurance through private lines. If you’re looking for more robust earthquake coverage, there are a number of speciality carriers, like GeoVera and Arrowhead Insurance, which write their own policies in California, Oregon, and Washington.