Solved! What Does Earthquake Insurance Cover?

Q: My partner and I are currently shopping for our first house, but we live in an area with a lot of earthquake activity. We’re thinking of buying earthquake insurance but aren’t sure if it will protect our home as we hope. What does earthquake insurance cover, and are there exclusions to coverage we need to be aware of?

A: When homeowners buy a home in a region with high levels of seismic activity, it’s common to worry about earthquakes—a large earthquake could cause catastrophic damage to a home. While some homeowners in these regions choose to protect their homes with earthquake insurance, other homeowners may wonder, “What does earthquake insurance cover?”

In general, an earthquake policy helps pay for damage to a house or the owner’s personal belongings due to an earthquake. Policies may also cover additional living expenses, like the cost of a hotel or laundry service if the homeowner needs to temporarily move out while repairs are made to a home damaged by an earthquake.

Earthquake insurance provides coverage for homeowners and renters who live in areas at high risk for seismic activity.

According to data from the Federal Emergency Management Agency (FEMA), many homeowners who live in areas of high earthquake activity don’t have earthquake insurance coverage. The following table shows the percentage of residents in several states who have a current earthquake insurance policy.

Earthquake coverage helps protect a homeowner’s home and belongings from damage caused by earthquakes. Standard homeowners insurance and renters insurance policies typically don’t cover earthquake damage. This means those who don’t have earthquake insurance would likely have their claim denied if they lost their home or belongings to damage from a large earthquake.
Earthquake insurance cost factors hold many homeowners and renters back from purchasing coverage, leading them to ask, “Is earthquake insurance worth it?” While the price of premiums is high, and deductibles usually a percentage of the policy limit, homeowners and renters in areas at high risk of seismic activity could potentially benefit from the coverage if an earthquake destroys their homes or belongings.

An earthquake insurance policy provides dwelling coverage to help repair or rebuild a home that’s damaged by an earthquake.

Dwelling coverage is one of the most important parts of earthquake insurance coverage. Like a basic homeowners insurance policy, the dwelling coverage portion of an earthquake policy helps pay to repair or rebuild a home damaged in an earthquake. Dwelling coverage extends to the structure of the home itself, including any attached structures, such as an attached garage or deck.

Actual coverage varies from one earthquake insurance company to another. Homeowners hoping to purchase an earthquake policy will want to carefully read the coverage types for the specific policy they’re considering. The best earthquake insurance companies make it easy for policyholders to ask questions and fully understand what is and isn’t covered by the policy.

Policyholders may also choose “other structures” coverage to help protect unattached structures such as fences or garden sheds.

Some homeowners may want additional protection from their earthquake insurance policy. For example, any detached structures, such as a detached garage, carport, or garden shed, won’t be covered under the dwelling coverage portion of an earthquake insurance policy.

Homeowners can talk with their earthquake insurance agent about adding coverage specifically for these unattached structures. Known as “other structures” coverage, this policy addition helps protect a property that has buildings that are not attached to the main home. However, adding more coverage for additional structures typically means the overall price of earthquake insurance premiums will also increase.

Personal property coverage helps policyholders pay to replace any belongings that are damaged or destroyed by an earthquake.

Most basic earthquake insurance for homeowners include personal property coverage. This protection helps cover the cost of repairing or replacing a homeowner’s property if it’s damaged by an earthquake. Personal property coverage typically covers a range of goods, such as furniture and clothing. High-value items, however, may fall outside of the coverage limits and require additional coverage.

Renters in areas at high risk for earthquakes may also want to consider renters or apartment earthquake insurance. This renter-specific earthquake coverage can help pay to repair or replace belongings lost to earthquake damage. While a landlord’s insurance will cover the repair of any damage to the physical rental structure after an earthquake, it won’t protect a tenant’s belongings. Adding a renters earthquake insurance policy could help protect a renter from being unable to replace their belongings following an earthquake.

Loss-of-use coverage can help pay for additional living expenses incurred if the policyholder is required to evacuate or temporarily relocate following seismic activity while their home is repaired.

Many of the best homeowners insurance companies include loss-of-use coverage in their earthquake insurance policies. Loss-of-use, or additional living expenses, coverage helps homeowners and renters pay for unexpected living expenses if they can’t live in their home after an earthquake.

If, for example, an earthquake caused significant damage to a house, the homeowner and their family find themselves living in a hotel temporarily. Their earthquake insurance coverage could help cover the cost of the hotel and other additional living expenses. Commonly covered expenses include additional costs of meals, transportation, and temporary housing.

Additional living expenses coverage usually only pays for costs above the homeowner’s typical costs.

Some earthquake insurance policies may offer building code upgrade coverage to help cover the additional costs of rebuilding an older, and not up-to-code, home.

Some older homes may have been built before new technology or earthquake-resistant building materials were available. An older home with earthquake damage may need to be brought up to modern building codes when the earthquake damage is fixed. This can place significant strain on the homeowner’s finances, but building code upgrade insurance could help cover part of the costs of upgrading.

The availability of building code upgrade coverage often depends on the location of the home. For example, the best homeowners insurance companies in California may be more likely to offer building code upgrade coverage than an earthquake insurance company in a low-risk area, such as the upper Midwest.

Like other additional coverage options, building code upgrade insurance usually means a policyholder will have increased premiums. Homeowners interested in adding building code upgrade coverage to their policy may want to shop around for the best earthquake insurance quote from top carriers.

In general, earthquake insurance won’t cover items such as vehicles, pools, and collectibles or valuable personal belongings. However, a policyholder may be able to purchase additional coverage for these items.

Homeowners and renters may need to consider certain types of endorsements or additional policies to fully protect their home from earthquake damage. Homeowners can generally review their existing policies with their insurance agent to decide whether they need any additional coverage for specific items. In many cases, homeowners can purchase additional coverage for items not covered by a standard earthquake policy. For example, homeowners may be able to add debris removal coverage, protection for detached structures, and land restoration coverage to stabilize the earth under a home following an earthquake. Like most additional coverages, these add-on policies will typically result in higher insurance premiums for the homeowner.

In addition, certain valuable personal property will likely not be covered by basic earthquake insurance. If the policyholder has expensive jewelry, sports equipment, art, collectibles, or computer equipment, they may want to take out a rider or endorsement to help protect these items. Policyholders can work with their insurance agent to determine what type of endorsements they need to more fully cover their personal belongings.

Certain earthquake damage may be covered by a homeowners or flood insurance policy.

An earthquake insurance policy doesn’t always provide full coverage for earthquake damage. Certain common exclusions to earthquake insurance may be covered by other types of insurance. A few examples of exclusions that may be covered by a different policy type include:

• Vehicles: Homeowners whose vehicles receive damage from an earthquake may have coverage from their car insurance policy if they have comprehensive coverage.
• Floods: Coverage for floods, even those caused by high water or tsunamis that are the result of an earthquake, almost always requires a separate flood insurance policy.
• Fire: When an earthquake causes a fire to ignite, such as if a gas pipeline explodes as a result of seismic activity, a standard homeowners insurance policy will typically cover the fire damage.

Flooding is one of the most common types of earthquake damage that usually isn’t covered by an earthquake policy. Even when an earthquake is the cause of a flood, the homeowner generally has to have a flood insurance policy to help pay to repair the damage. Flood insurance is a specific type of coverage that helps homeowners repair or rebuild their homes after flooding causes damage. Like earthquake insurance, flood insurance typically has additional premiums separate from a homeowner’s standard insurance policy.

In general, homeowners and renters who live in an area at high risk for earthquakes will want to strongly consider purchasing an earthquake insurance policy.

Earthquake insurance policies often have high premiums and deductibles. This can leave homeowners and renters feeling uneasy about purchasing coverage. When deciding whether they need earthquake insurance coverage, homeowners and renters will want to consider the following factors:

• Is the home in an area at high risk for earthquakes?
• How often do earthquakes occur in the area?
• When was the last earthquake?
• How much would it cost to rebuild the house from the ground up? Does the homeowner have the savings to cover the cost?
• How valuable are the homeowner’s or renter’s belongings?
• Is the dwelling built using modern earthquake-resistant building standards?

These factors can help homeowners and renters determine whether earthquake insurance offers the coverage they need to help protect their home and belongings from earthquake damage.