It may come as a shock to know that only 17% of California’s homeowners have earthquake insurance. So why is this number so low, especially in a state where earthquakes are very likely to happen?
Up until 1994, companies that wrote homeowner’s insurance in California were also required to offer earthquake coverage. But after the 1994 Northridge quake, most insurers refused to write either. They argued that the $12.5 billion in insurance claims from the quake was far higher than expected. In fact the claims from the Northridge quake totaled more than the total of all earthquake insurance premiums ever collected in California.
Enter the California Earthquake Authority (CEA), a state-run insurance pool, which has changed the way earthquake insurance is offered. Unlike tornadoes, hurricanes, and wildfires, which are typically covered in home insurance policies, earthquake insurance is now purchased separately and often comes with a high deductible, in addition to premiums, making earthquake insurance not very popular. The first CEA policies were terrible and required homeowners to pay a 15% deductible. So a homeowner insured for $450,000 had to pay $67,500 before coverage kicked in. There were other downfalls like no coverage for rent/living expenses while your house was being fixed.
Thankfully after enough complaints from homeowners, the CEA now offers more earthquake insurance options, including lower deductibles and greater contents coverage. Two private companies, Pacific Select and GeoVera also offer more comprehensive earthquake policies as well.
So should you opt for earthquake insurance? It all comes down to how much risk you are willing to take and how financially secure you are. So to give a definitive “yes” or “no” is difficult. But you do need to consider the following:
Bolted Foundation
Homes that are bolted to their foundations do tend to fair better than those not bolted after a quake. Bolting seems to work best for one-story wood-frame homes. However, no amount of retrofitting can protect against a truly powerful quake, especially if the ground beneath the foundation gives way.
FEMA Funding
Many homeowners wrongfully assume that they can just get free money from FEMA (Federal Emergency Management Agency) to help rebuild after a devastating quake. FEMA only offers low-interest loans that homeowners are obligated to pay back. These loans are also entered in your personal net worth statement as a liability, offsetting an equal amount of assets.
Foreclosure
When faced with an earthquake-devastated home, some homeowners let the back foreclose on their home. Bad decision! No only do you lose all your equity, but it puts your credit rating at high risk.
My Home has Survived other Earthquakes 
Every earthquake is different. So even if your house survived so-and-so quake, you might not be as lucky next time. With new fault lines and different magnitude levels, there’s no guarantee that your house can withstand it all.
When it comes to making the final decision on earthquake insurance, do your research, evaluate your financial situation, and consider how much risk you are really willing to take when it comes to your home.
Cesi Pagano
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