As explained in my last post (Policy Exclusions), California homeowners policies exclude coverage for damages resulting from earth movement, including earthquake. But, those who live in the San Francisco Bay Area live in earthquake country.
To purchase Earthquake Insurance or not? That is the question.
In California, all homeowners insurance carriers are required to offer their insureds earthquake insurance every other year.
The standard earthquake insurance policy includes Dwelling Coverage that is equal to the limit on your Homeowners policy, $5,000 of Personal Property coverage, $1,500 of Loss of Use coverage, and a substantial deductible of 15% of the Dwelling Coverage limit. For most homes in Burlingame, Hillsborough, and San Mateo, this would yield a deductible of at least $100,000.
Since the Earthquake Insurance policy has such a substantial deductible, the policy helps the most in the event of a catastrophic loss. The downside is that, in the case of a such a severe loss, where the damage has surpassed the deductible, chances are that you will not be able to live at your home and you would need significantly more than $1,500 of Loss of Use coverage.
Some questions to ask when considering earthquake insurance:
- How much equity do I have in my home? The more equity you have in your home, the more reason to consider purchasing Earthquake Insurance. Though the premiums and deductibles can be high, if you own your home completely or even if you have a mortgage for less than half of the worth of the home, you have a much bigger investment to lose in the event of an earthquake causing major damage to your house.
- In what year was my home built? Homes built before 1948 that have not been retrofitted are much more likely to be damaged by an earthquake than homes built after the year 2000 simply because of the change in building codes, seismic technology, and building materials used in current construction.
- Has my home been seismically retrofitted? Most carriers require that your home be seismically retrofitted if it was built before 1948. Seismic retrofitting includes foundation anchor bolts, cripple walls where applicable in crawlspaces, and the strapping of the waterheater to the wall. Most homes built after 1989 have some extent of retrofitting by nature of building codes. Many times clients opt to spend what would be their annual earthquake insurance premium on the seismic retrofit of their home, which provides strength and stability to the foundation, significantly reducing the risk of earthquake damage.
- How close is my home to a fault? On what type of soil is my home built? If your home is located within 1/8 of a mile to a fault, earthquake insurance is a more imporant consideration than it would be if your home was 15 miles from a fault. In the immediate Bay Area, nearly all homes are within 10 miles a fault. Homes that are built on bedrock are much less susceptible to earthquake damage than homes built on soft soil, which are prone to liquefaction. As a side note, usually homes built on soft soil are located near water and are thus in flood zones, where Flood Insurance is required by lenders.
- How easily can I satisfy the deductible? As noted above, the standard Earthequake policy deductible is 15% of the Dwelling coverage limit. There are a few policies available with a 10% deductible, for an additional premium of course. If you do not have the liquidity to satisfy the potentially $100,000+ deductible, the coverage may not make sense for you.
- Who will be my Earthquake Insurance carrier? Since homeowners insurance carriers are required to offer earthquake insurance, many carriers have chosen to become a part of the California Earthquake Authority (CEA) pool to transfer the responsibility of underwriting of this coverage. If your homeowners carrier is a part of the CEA and you purchased earthquake insurance, then the CEA, a California government agency, would be responsible for the collection of premium, the investment of premium, and the payment of claims in the event of a loss. Make sure you understand exactly what carrier or entity will be responsible for paying claims in the event of an earthquake.
Another way to mitigate the risk of loss due to earthquake is to install a seismic or an excess flow valve on your gas main. These valves automatically shut off your gas main in the event that the earth moves at a greater magnitude than 5.0 or in the event that too much gas is constantly flowing from your gas main. This valve reduces the risk that an earthquake could cause your gas main to break and blow up your home. Many insurance companies provide a discount on the Homeowners policy premium for installing one of these valves.
Whether you choose to purchase Earthquake Insurance or not, be informed about your decision and the reasons behind it!