Earthquake Insurance

Earthquake Insurance CoverageAccording to the U.S. Geological Survey, there is a 70 percent probability that one or more damaging earthquakes of magnitude 6.7 or larger will strike the San FranciscoBay area during the next 30 years. (A magnitude 6.7 earthquake is equivalent to the 1994 Northridge, Calif., earthquake that killed 57 people and caused $20 billion worth of damage.)

Homeowner, condo and rental insurance policies do not cover damage caused by an earthquake, but coverage can be purchased as an endorsement or a separate policy.

How Much Earthquake Insurance Coverage Should I Buy?
If you decide to purchase earthquake insurance, remember you should buy enough to cover the costs of rebuilding your house and replacing broken possessions. The amount of insurance you buy should be based on replacement and reconstruction costs, not the market value of your property and possessions.

You should also find out your rights for filing claims before you sign any earthquake insurance policy. It’s important to know how much time you have to file a claim following a quake. In some cases, damage from earthquakes is not immediately apparent.

What Else Should I Consider When Buying Earthquake insurance?
One factor to keep in mind is the deductible on an earthquake insurance policy. A typical deductible is 10%. Coverage of the structure and coverage of the contents is separate. Thus a $200,000 home with $100,000 contents would only exceed the deductibles if structural damage exceeds $20,000 and contents damage exceeds $10,000. For a well-built wood-frame house, this deductible generally exceeds the structural loss for most moderate earthquakes. Due to good design, in recent earthquakes the damage to structures is a smaller part of the total loss than the damage to contents. It should be clear that earthquakes can have different sizes and occur at different distances from your home. In general, as either the magnitude goes up or the distance decreases, the severity of shaking increases. Those residences that are relatively close to an active fault are more likely to suffer damage, although there can be exceptions due to numerous causes. Thus, even though the probability of a magnitude 6 earthquake someplace in the Reno-CarsonCity region is as high as 8% per year, the probability of it being close enough to damage your house is smaller.

You may want to consider the quality of construction of your residence. Single-story wood frame houses generally perform well in earthquakes so long as they are properly attached to their foundation. Some of the factors that increase the risk of loss are: presence of a cripple wall between the foundation and the floor of the first level; multiple stories, especially with living space above the garage; or construction from less resilient materials, such as unreinforced masonry.

Another factor is your personal attitude about risk and your personal financial situation. Some people are more willing to take risks than other people. Some people are more able to afford earthquake insurance than other people. Some people have sufficient financial resources that loss from a severe earthquake is tolerable for them.
Finally, remember that not all insurance companies are the same. It may be worthwhile to shop around for the best rates or lowest deductible before purchasing your earthquake insurance.