Solved! Is Earthquake Insurance Worth It?

Q: I’m shopping for a home in a new state. My real estate agent mentioned there have been earthquakes in the area, and she recommended looking into earthquake insurance for my new home. Is earthquake insurance worth it, and how do I know if I need to get it?

A: A large earthquake can be one of the most devastating natural disasters to hit structures such as houses. Shifting earth could snap structural supports or damage utility lines. Most types of homeowners insurance typically don’t cover damage caused by earthquakes. However, homeowners can usually purchase a separate earthquake insurance policy or add an earthquake endorsement to their existing policy. This might leave them wondering, however, “Is earthquake insurance worth it?”

The answer depends on location since certain geographic regions are more prone to earthquakes than others. For homeowners or renters in California or Oregon, which experience relatively frequent earthquakes, this additional insurance coverage is undoubtedly worth it. But for a homeowner in a low-risk state, earthquake insurance may not be worth the cost. In addition to determining how much homeowners insurance they need, residents of high-risk areas will likely want to purchase an additional earthquake insurance policy or endorsement to their existing homeowners insurance coverage.

Earthquake insurance is often recommended for people who live in areas with a high risk of earthquakes.

Earthquakes don’t always cause major damage to structures; in fact, it’s common for small earthquakes to cause little to no damage. Many of these small earthquakes might even go unnoticed by the people in the affected area.

However, it only takes one large earthquake to cause severe damage to a home. Homeowners will want to consider their personal risk factors and risk tolerance when deciding if they need to get home earthquake insurance. Homeowners can easily see their potential earthquake risk using the U.S. Geological Survey earthquake map.

Homeowners in particularly high-risk areas may want to consider earthquake insurance. For example, much of the California coastline is regularly affected by earthquakes. A homeowner in this region may want to look into the price of earthquake insurance to protect their home. On the other hand, a home in northern Minnesota has a much lower risk of earthquake damage. Homeowners in this area might not consider the price of coverage worth it due to the lower risk.

While many earthquakes cause little to no damage, just one catastrophic event can destroy a home and leave the homeowner facing extortionate rebuilding costs.

Rebuilding a home after a large earthquake is no small project. Even a small, relatively simple house will likely cost hundreds of thousands of dollars to rebuild. In addition, there are costs related to the cleanup or removal of the existing damaged structure. If the earthquake causes any damage to gas or power lines, the homeowner may face hazardous material cleanup costs as well.

After a disaster like a large earthquake, homeowners can also expect building material costs to rise due to demand. For example, if an entire street of homes is destroyed in an earthquake, all of those homeowners will have to compete for resources including materials and builders. This could drive the cost of rebuilding even higher than it might during regular times.

Evaluating the cost of rebuilding a home is an important part of the process for homeowners when they’re comparing the pros and cons of earthquake insurance, as well as factors including:

• The home’s distance from fault lines
• The number of earthquakes per year in the area
• The cost of earthquake insurance
• The home’s construction; stone and brick tend to sustain more damage in earthquakes

Most homeowners, renters, and condo insurance policies do not cover damage caused by earthquakes.

Earthquakes are one of the most common exclusions to a basic homeowners insurance policy. That means a homeowner would have to pay out of pocket to repair or rebuild their home if it were damaged in an earthquake. Renters could also be at risk if an earthquake causes damage to their personal belongings—most renters insurance policies don’t include earthquake coverage.

Condo owners in earthquake-prone regions face a unique problem as well. A basic condo owners insurance policy usually doesn’t cover damage from earthquakes. Additionally, many condo associations and condo homeowners associations (HOAs) don’t purchase earthquake insurance for the structure. Condo owners may want to consider talking to their condo association about earthquake condo insurance if they’re concerned about earthquake damage.

Although homeowners insurance generally doesn’t cover direct damage from an earthquake, many policies include coverage for fires resulting from an earthquake. Fires are common after earthquakes due to pressure on gas pipelines or electric power lines. The best homeowners insurance companies will generally cover fire damage that results from leaking pipelines or utilities, even if the home doesn’t have earthquake coverage insurance.

Earthquake insurance can provide dwelling coverage for homeowners whose home suffers damage from an earthquake event.

Getting earthquake insurance quotes from several of the best earthquake insurance companies is often a good idea for homeowners in high-risk areas. A quote lets the homeowner see what is and isn’t covered by the earthquake insurance policy, and homeowners can compare multiple quotes to determine which best fits their needs and budget. Although coverage varies among carriers, most earthquake policies cover the structure of the home.

Known as dwelling coverage, this insurance protection helps cover costs to repair or rebuild a homeowner’s house if an earthquake causes damage. It also usually covers any structures attached to the home, such as a garage. Some policies may include protection for detached structures on the property as well, like a garden shed or fence. Homeowners will want to carefully read their policies to know what structures are and aren’t covered by earthquake insurance.

Along with checking for specific structure coverage, homeowners will want to consider the caps or limits to the policy. Earthquake insurance may have a lower coverage limit than a regular homeowners insurance policy, or it may use the same coverage limit as the homeowners insurance policy.

Earthquake insurance also provides coverage for personal property for homeowners, renters, or condo owners.

In addition to dwelling coverage, most earthquake insurance policies help cover repair or replacement costs for the policyholder’s personal belongings. Personal property coverage helps homeowners replace any goods destroyed or damaged by an earthquake. Like dwelling coverage, personal property coverage usually has coverage limits. The policy may also have specific limits for types of items, like fine art or jewelry.

Earthquake insurance for renters and condo owners often works a little differently than homeowners earthquake insurance. Renters don’t have to cover the physical structure of their rental home—that’s generally their landlord’s responsibility. Likewise, condo owners typically own the interior of their units; the overall building or condo complex is protected by an insurance policy managed by the condo association.

This means a renter or condo owner usually only needs to protect their belongings in case of earthquake damage. Renters and condo insurance policies, like traditional homeowners insurance, usually don’t include earthquake coverage. Renters can purchase a policy with one of the best renters insurance companies in their area and then find out if they can add an earthquake endorsement or take out an earthquake-specific policy.

Additionally, earthquake insurance can cover the cost of extra living expenses incurred if the policyholder is required to relocate while repairs are made to their home.

What happens to the homeowner if their house is destroyed in an earthquake? They’ll need somewhere to stay while their home is being assessed and rebuilt—as well as a way to pay for it. For many homeowners who have earthquake insurance, their insurance policy takes care of at least some of these costs.

Additional living expenses coverage, which is also called loss of use coverage, helps homeowners pay for the cost of living outside their home during repairs. If an earthquake makes a home uninhabitable, the homeowner may choose to rent a room in a hotel or short-term rental, and loss of use coverage can reimburse the policyholder for these expenses. Additional living expenses coverage can also cover meals and transportation above normal living costs if the policyholder needs to eat meals in a restaurant rather than at home, or drive to work rather than walk.

For example, a homeowner’s house may be severely damaged in an earthquake, leaving them unable to live there for 6 months. The homeowner may rent an extended-stay hotel room to live in while their home is repaired. The hotel may be farther from their place of  work than their home is, making their transportation costs about $100 higher than usual per month. Their earthquake insurance policy could cover the additional $100 monthly cost incurred by commuting to their workplace from the temporary residence.

Policyholders may be able to opt for additional coverage for building cost upgrades and emergency repairs—but this comes at a higher cost.

Earthquakes are a unique type of natural disaster because they can do more than cause damage to walls, windows, and belongings. An earthquake could potentially alter how the land sits underneath a home. In turn, this could compromise a home’s foundation or foundational structure. Shifting earth and foundations could mean the homeowner needs to make emergency repairs to save the overall structure of the home.

Homeowners may also want to have their houses inspected after an earthquake to make sure they’re structurally sound. If the house doesn’t pass inspection, the homeowner could be on the hook for expensive foundation repairs or electrical upgrades.

Some earthquake insurance policies help homeowners cover these unexpected expenses with additional coverage for emergency repairs or code upgrades. However, these additional coverages often cause the earthquake insurance price to go up. It’s recommended that homeowners looking for earthquake insurance ask about the change in earthquake insurance cost when considering additional coverage.

Earthquake insurance premiums can be expensive, and deductibles tend to be on the higher end.

The average earthquake insurance cost for a particular area or region usually depends on the risk of earthquake damage. In general, the higher the risk of an earthquake, the higher the cost of earthquake insurance. For example, homes in California or Oregon may cost more to insure against earthquakes than homes in the Midwest, where earthquake risk is relatively low.

Homeowners will also want to consider the amount of coverage they need when they start shopping for earthquake insurance. The amount of coverage and policy limits can affect the cost of an earthquake insurance policy. For example, a homeowner might be able to opt for a higher deductible to get a lower premium. However, it’s a good idea for homeowners to carefully consider all of the costs and benefits of an earthquake insurance policy before signing up. Many earthquake policies have separate deductibles for different types of coverage, such as one deductible for structural damage and one for property damage.

Ultimately, earthquake insurance can be well worth the cost for those who live in a high-risk area, such as California.

Despite high costs for coverage, earthquake insurance could be worth it for homeowners in high-risk areas. A home near an active fault line might be at significant risk of earthquake damage, and traditional homeowners insurance typically won’t cover the repair costs. Most homeowners don’t have the funds to completely rebuild their homes from the ground up out of  pocket in the event of an earthquake. For this reason, the benefits of having earthquake insurance likely outweigh the cost of carrying earthquake coverage.

On the other hand, earthquake insurance might not be worth it for homeowners who live in low-risk areas. Homeowners in these areas will want to compare the cost of earthquake coverage to the chances of an earthquake destroying their homes. Even in the event of an earthquake nearby, many homes in low-risk areas are unlikely to have enough damage to justify the cost of earthquake insurance.