Should you buy Earthquake Insurance?

In California, this question comes up frequently. With the recent earthquake in Japan and other areas of the world, it brings to light the devastation that can result from high magnitude earthquakes. The cost of purchasing earthquake is quite considerable and in most instances can cost more than the home insurance policy. Additionally, the standard policy offered from the California Earthquake Authority comes with a 10% deductible - as in 10% of the insured amount. The high deductibles relegate this coverage to purely catastrophic exposures.

However, earthquakes are a certainty and one of the only risk factors or perils that have the potential to completely obliterate your home and thus your equity. In my opinion, the homeowner should first consider the amount of equity that they own in the property and determine if they are comfortable with the risk potential. For example, if you own your house free and clear like 30% of American homeowners, your home probably represents a significant portion of your net worth. In that instance, you should seriously consider purchasing earthquake insurance. You can adjust the deductible as high as allowed and get quotes from private insurance companies (where available) to make the most effective purchase.

In the event that you do not have significant equity in the property and choose not to purchase earthquake insurance, there are a few protective measures you can take to reduce your potential loss and increase your personal safety. If your home was built on a raised foundation, you can pay a contractor to install retrofitting, which will help secure the structure to the foundation. This will reduce damage due to shifting and the potential for crumbling. Retrofitting, depending on the size of your home and the materials needed, can typically cost north of $3,000. This is a considerable expense, however it typically only needs to be done once.

Another precaution - you can install an earthquake safety valve on your gas meter. This device will shut off the supply of gas to your house in the event of earth movement. Since much of the damage from earthquake results from subsequent fires caused by ruptured gas lines, this little device can literally be a life saver. The cost of these devices is about $350 typically and should be performed by a licensed and insured contractor.

Whatever you decide, you should at least be aware of what your home insurance policy does and does not cover. It does NOT cover earthquakes. Many people do not realize that fact, so it is worth mentioning. If you have specific questions, or would like to further discuss, give us a call or post a comment below.