Earthquake Insurance

There was a big, long earthquake last night felt in Anchorage and surrounding areas.  The epicenter was near Kodiak and many on the big island and surrounding islands headed for the hills following a tsunami warning.  It turns out that there was no tsunami and that is a good thing.  It doesn't appear that there is any property damage (or very little) from reports received so far, but there could have been.

​Earthquake is a catastrophic event and a big one can causes millions of dollars in property damage.  So, what does your insurance do when earthquake damage hits?  Well, the answer depends on what type of property we are talking about and what type of insurance is in place at the time of the loss.  

​When it comes to your auto, all you need is comprehensive coverage.  Comprehensive is the coverage that pays for sudden and accidently damage that is not collision (with another vehicle or object) and not excluded.  It includes, but is not limited to perils such as: fire, theft, wind, flying missiles (rocks or other debris kicked up by cars), falling objects (trees, airplanes, etc), flood (yes, flood is covered), collision with an animal, glass breakage and many others including earthquake!  The personal auto policy (and the commercial auto policy for that matter) covers flood and earthquake under comprehensive coverage.  

​Your homeowners coverage is another matter, however.  Earthquake damage is excluded in most residential and commercial property policies and must be added back on by an endorsement which will include a premium charge.  It is not cheap.  Typically, earthquake coverage can run from $1.50 per $1,000 in property coverage to $3.00 per thousand.  If the price were $2,00 per thousand on a $200,000 value home, the price for the earthquake endorsement would be $400 per year (200,000 divided by 1,000 times 2.00 = $400.00). 

​One thing to be aware of, however, is the deductible.  Earthquake coverage has its own unique, separate deductible.  It is typically expressed as a percentage of the total coverage limit.  For instance, a 10% deductible on a $200,000 home would be $20,000.  The deductible is calculated using the coverage amount, not the amount of the loss.  Additionally, there is also a deductible on the contents of the home as well.  If our $200,000 value home has $100,000 in contents coverage, there would be an additional $10,000 deductible for damage to the contents of the home caused by an earthquake.  This is in addition to the deductible on the structure.

​While this may seem like a lot and not worth it, consider this before making your decision.  If you have a $180,000 mortgage (on the home described above) and an earthquake levels it, you will still owe the $180,000 to the bank even if you did not carry earthquake insurance.  Now, you have a mortgage, but no home to live in.  If you had carried earthquake coverage, you would have a $20,000 deductible on the structure and a $10,000 deductible on the contents for a total of $30,000, but the home would be rebuilt to the same specifications it had prior to the loss (assuming you carried the correct replacement cost amount of coverage on the home).  You would have the $180,000 mortgage still, but you would have a home to live in.  If you don't carry earthquake coverage and suffer an earthquake loss, you will have the $180,000 loan and maybe a government loan of $300,000 (to rebuild the home and furnish it) for a total of $480,000 on a home worth $200,000. The government does not GIVE the money to rebuild the home, it LOANS it, so you would have two loans on one piece of property or one loan on a destroyed home.  

​There is no right or wrong answer to whether or not your should carry earthquake insurance.  There is only an informed decision to make.  You need all the information available before you can make that decision, so call your insurance agent today and ask questions about earthquake coverage for y our home.

​One more thing.  You typically cannot add earthquake coverage to a homeowners policy within 30 days of an earthquake in the area, so this decision is not one you make during or right after the earthquake, but one you make BEFORE the earthquake occurs.  Most companies will let you add it, but wait for the 30 day period until it takes affect.  

​Be sure to contact your insurance agent and ask about earthquake coverage so you can make an informed decision!