Is earthquake insurance worth it?

Earthquake insurance is expensive, but it may be worth the exorbitant cost in areas prone to seismic activity.

Published February 28, 2019

Earthquake insurance covers your home and personal belongings against seismic damage. It may also pay for your additional living expenses if earthquake damage forces you from your home for an extended period.

However, earthquakes aren’t covered by a standard home insurance policy, so you need to add a policy endorsement or get a separate policy if you want to be covered. Coverage can also be expensive in quake-prone areas, and earthquake insurance deductibles – the amount you pay out of pocket for a loss – are generally high and have a tendency to exceed the loss amount that you’re claiming.

But despite its exorbitant cost, earthquake insurance is essential if you live near an active fault. The cost of losing your home to a quake and not having insurance is far greater than the cost of earthquake insurance itself.

In this article:

Do you need earthquake insurance?

Earthquake insurance isn’t required by law, and mortgage lenders typically don’t require it like they do homeowners insurance and, in some cases, flood insurance. 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 (hydraulic fracturing) is common.

Be sure to do a little digging and see if you need coverage. The biggest factors in determining a property’s risk of incurring earthquake damage 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, which means 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 policy unless you add an endorsement or rider.

You can expect a standard earthquake policy to cover:

Your 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.

Your personal property

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

Your additional living expenses

Or 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.

Your other coverages

Which refers to any emergency repairs that need to be done to protect your property against residual damage; building code upgrades; land repair that’s necessary for stabilizing or supporting your home; and 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 only insures you against seismic damage, which means earthquake- and volcano-related losses. If earthquake damage to your home caused your plumbing to burst and resulted in water damage to your home and personal belongings, the residual water damage would also be covered.

The table below details what insurance-type covers certain costly perils. As you an 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 mudslide
Except for water damage from floods and seeping groundwater

When earthquake insurance is worth it

Not all earthquakes caused enormous earth-shaking 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 lived 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 build 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 in regards to what it covers — earthquakes and volcanoes only and very little proximate damage related to those disasters
  • It’s a lot of money for something that happens as rare as major earthquakes or volcanoes

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% to 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.

And a “smaller” earthquake loss like, say, $50,000, may not even exceed your deductible. So you’re basically left paying your high premiums for a total earthquake loss, which has a very small chance of happening.

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 you’re insured for is about $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 per year to insure than frame homes.

To keep your rates down, check with your insurance company to see what kind of discounts or credits are available. The California Earthquake Authority, for example, offers discounts of up to 20% if your home was built before 1960, is frame-constructed, and you retrofit it 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$45,000$3,750$35,000$83,750
Amount insurer is responsible for$135,000$11,250$75,000$231,250

That means if you incur $231,250 in losses on a property that’s insured for $320,000, you may have to pay as much as $83,750 out of pocket if you’re responsible for the separate 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 for damages caused by separate parts 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 lines who offer earthquake coverage. Particularly in California, insurance companies who sell homeowners insurance are required to offer earthquake insurance.

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.

You can also apply for earthquake insurance through Policygenius, where our dedicated team of experts can help you find a policy or add an endorsement to your existing policy.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.