Earthquake Insurance
Do I need earthquake insurance?
Earthquake insurance isn’t required by law in California (unlike auto insurance), and most mortgage lenders do not require it either.
However, if your home suffers damage after an earthquake, there is typically no coverage under your standard homeowners insurance policy. You’ll need a separate earthquake policy to pay for repairs and additional living expenses.
What’s covered?
On a homeowners property, earthquake insurance will typically cover:
Your home or dwelling – this will match your dwelling coverage on the corresponding property policy
Your personal property – your TV, furniture, etc.
Loss of use – additional living expenses if you need to live or eat elsewhere after suffering earthquake damage (if it’s a rental property, you will get fair rental value)
Building code upgrade – when rebuilding after an earthquake, cities and states often require work be done in line with current building codes. This coverage helps pay expenses to cover those costs
On a condo policy, the above applies except the dwelling coverage will only cover your condo unit interior. The HOA will need their own separate earthquake insurance to cover the exterior building.
On a renters insurance policy, you will mostly be looking for personal property coverage and additional living expenses after an earthquake. Dwelling coverage wouldn’t apply here, resulting in more affordable earthquake premiums for renters.
Is it worth it?
The cost for earthquake insurance can be high depending on the earthquake risk for that area (for example, San Francisco has a higher earthquake risk than Sacramento, so you’ll see much higher earthquake rates in San Francisco). Sometimes the premium will be double or triple the homeowners' premium.
Though it sounds good in theory to get earthquake insurance, there are some issues with the coverage.
Earthquake insurance coverage can be limited. Coverage limits cap at a lower amount (except for dwelling coverage, which matches the property policy).
Deductibles are high – they range from 5% to 25%. The standard deductible is 15%. To keep rates down, you can pick a higher deductible option.
In an example, if your home dwelling coverage is $600,000 and your earthquake policy has a 15% deductible, then you’ll need to sustain $90,000+ of earthquake damage before coverage would kick in.
How do I get earthquake insurance?
There’s 3 main markets for earthquake insurance:
California Earthquake Authority (CEA) – you must have your home or property insurance with a participating insurer to be eligible
Endorsement on your homeowners policy – for insurers that do not work with CEA, you may be able to just add it onto your homeowners policy as an endorsement
Standalone earthquake insurance carrier – there’s companies that solely offer earthquake insurance for residential properties (in some cases, the coverages are richer)
You will get an earthquake offer from your home or property insurer each year (or every other year) with your policy renewal. It’s a good idea then to review and get a premium indication of your earthquake premium.
