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Earthquake Insurance Guide

Protect Yourself Against the Next Big Quake

Earthquake insurance is, admittedly, optional. Most U.S. homeowners decide not to get it. But residents in the Pacific Northwest should seriously consider an earthquake policy.

Communities located in fault zones (such as the western and coastal areas of Washington, Oregon and California) are at higher risk for a major earthquake. The last major one in Washington state occurred on Feb. 28, 2001. The magnitude 6.8 Nisqually earthquake struck 11 miles north of Olympia and could be felt as far as central Oregon, damaging several buildings, roads and bridges.

Nobody can predict the timing or location of the next big one. Just as with home and auto coverage, you may pay insurance premiums for years and never make a claim. But what if a big earthquake does hit? Earthquake damage, like flooding and landslides, isn’t covered under standard home policies.

Protecting your assets

The main purpose of insurance — whether that be medical insurance, auto or home policies — is to protect yourself against events that could ruin you financially. Insurance gives you access to large amounts of money when you need it most. And this is especially true of earthquake insurance.

An earthquake can destroy your home and its contents. If you don’t have separate earthquake coverage, you’ll likely have to pay entirely out of pocket to repair or replace your home. So, in this regard, earthquake insurance serves the same purpose as standard home and auto insurance, in that the policy protects your savings and investments from an unexpected disaster.

Who should get earthquake insurance?

Any homeowner can obtain earthquake insurance; however, people who live in fault zones face the most risk of a devastating quake. According to the U.S. Geographic Survey, the western and coastal regions of Washington, Oregon and California are considered at high risk of a big quake. The Pacific Northwest, for example, faces a triple threat for a major earthquake from three separate fault zones.

Homeowners in higher risk areas, regardless of the house value or its mortgage, should consider getting an earthquake policy. Keep in mind that if your home is mortgaged, you will still owe the indebted amount even if the home is destroyed by an earthquake. You could be faced with monthly mortgage payments while simultaneously paying for repairs or the replacement of your home. With few exceptions, your standard home policy won’t cover you.

What does earthquake coverage cover?

Earthquake policies are often triggered when the ground shake intensity reaches a certain level. The coverage on an earthquake policy can range considerably and depends on the insurance company. You also have options to upgrade the insurance or add uncovered items. These can increase the cost considerably.

However, insurers cover different items and exclude others. For example, in some cases, the standard policy provide some coverage for pools or walkways, whereas others will not. Because the coverage varies so much by insurer, it is important that you discuss your options with an experienced insurance broker.

The basic plan normally insures the replacement cost of the home minus the deductible. Most standard policies have a relatively high deductible of 10% to 25% of the policy limit. If you have a 10% deductible on a $500,000 policy, for example, you’ll first pay $50,000 out of pocket and then qualify for up to $450,000 in insurance to have that home repaired or rebuilt. However, some insurance companies are offering deductibles as low as 2.5% to 5%. The lower the deductible the higher the cost of the insurance.

Some policies will include additional coverage that pays for building upgrades that might be needed to bring older homes up to code. Normally, if your basic plan doesn’t include this, you can sometimes add it for an additional cost by upgrading your plan.

Protecting a home’s contents

You can add extra coverage that insures personal property or provides temporary living expenses should you have to rent while your home is rebuilt. Most insurers offer upgraded plans that cover extra items.

Earthquake coverage might not, however, cover all the damage caused to your home. An earthquake policy, for example, won’t cover damage to your vehicles. Damage caused to your cars in an earthquake would normally be covered by comprehensive auto insurance.

Likewise, fires and flooding are usually not covered by earthquake insurance. A fire that results from an earthquake would typically be covered by your home policy. As for floods, a large offshore earthquake could potentially cause inland flooding. A homeowner, however, would usually need separate flood insurance to cover any flood damage caused by that event as most standard home policies won’t provide coverage for floods.

Cost of earthquake insurance

Homeowners in higher risk areas for an earthquake pay higher premiums for the insurance. A standard policy covers the replacement costs of your home. So, the higher the value of your home, the more the policy will cost.

In Washington, a standard earthquake policy costs roughly a third to half as much as the home policy. For example, if your home policy costs $2,000 annually, you will likely pay roughly $600 to $1,000 annually extra to add earthquake coverage. Policies with lower deductibles and ones that insure personal items and provide displacement protection cost more.

Obtaining earthquake insurance

Earthquake coverage is widely available. However, in some cases, insurance companies will ask you to fill out a questionnaire to determine the age of the home and whether it is properly retrofitted to minimize the risk of damage in an earthquake.

In most cases, this is only a requirement for people who own older homes. You might be asked to send pictures or make some modifications to your home.

It is a good idea to purchase earthquake insurance through an experienced insurance agent who works with a network of insurance companies. Given that the coverage varies tremendously by company, some policies will be better suited for your needs. An agent can match you with a specific insurance provider that best suits your situation and budget.

– Written by Victor Whitman
– Top photo from Adobe Stock

AAA Washington Insurance Agency is here to help. If you are looking to review your car insurance or simply have questions, call (877) 222-4678 for a free, no-obligation consultation. You also can find an agent near you, or request a quote online.

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