This week's earthquakes in the Desert Southwest have many people asking about quake insurance. Most homeowners, renters and business insurance policies do not cover damage from earthquakes. This poses a problem not unlike the one faced by people living in coastal or flood-prone areas. Just as they need specific flood insurance, people in quake-prone areas need quake insurance.
Insure.com points out:
Since the beginning of the 20th Century, earthquakes have occurred in 39 states. Approximately 90 percent of Americans live in areas considered seismically active. Even so, only a small percentage of people purchase earthquake insurance.
What's the risk? Probably higher than you think. And it's growing.
FEMA calculated in 2000 that annual losses due to earthquakes in the United States are about $4.4 million.
The Insurance Information Institute says:
How expensive is quake insurance? The Insurance Information Institute says:
[D]eductibles can range from 2 percent to 20 percent of the replacement value of the structure. This means that if it cost $100,000 to rebuild a home and there was 2 percent deductible, the consumer would be responsible for the first $2,000... Insurers in states like Washington, Nevada and Utah, with higher than average risk of earthquakes, often set minimum deductibles at around 10 percent. In most cases, consumers can get higher deductibles to save money on earthquake premiums. [...]
Premiums also differ widely by location, insurer and the type of structure that is covered. Generally, older buildings cost more to insure than new ones. Wood-frame structures usually benefit from lower rates than brick buildings because they tend to withstand quake stresses better. Regions are graded on a scale of 1 to 5 for likelihood of quakes, and this may be reflected in insurance rates offered in those areas.
Unlike most homeowner or tenant policies, earthquake insurance primarily covers major losses. It normally is sold with deductibles equaling 10 to 25 percent of the structure's policy limit. Recently, the industry trend has been to raise deductibles.
This limit works much like the deductibles on your auto insurance. The result is that the insurance pays only for damages that exceed the deductible. However, unlike car insurance, some earthquake policies treat contents and structure separately. This means the deductible amount applies separately to the:
- Total amount of the loss for contents
- Total amount of the loss for the structure
- Total amount of the loss for unattached structures like garages, sheds, driveways or retaining walls
Not all policies are alike. You should compare the coverage differences between companies to get the coverage that best meets your needs.