Many people consider earthquake insurance expensive, but that doesn’t have to be the case. Many policies offer annual premiums and deductibles comparable to homeowner policies – making earthquake coverage affordable.
The cost of earthquake insurance depends on several factors, including its proximity to fault lines and seismic activity in your area. You can get more information about its costs by answering a few questions on CEA’s website.
The Risk of Earthquakes
Earthquakes are a natural disaster that can cause both property damage and personal injuries, with secondary risks including fires, floods and deformation from faulting or soil liquefaction compounding their impact on communities by diminishing quality of life and economic activity. Earthquake insurance helps mitigate against such risks by providing financial security against losses of life or property in case an earthquake strikes.
Risk for earthquake-related losses is one of the key drivers behind earthquake insurance costs, with factors like distance from major fault lines, Modified Mercalli Intensity Scale values, lahar presence and soil liquefaction all having an effect.
Alongside geographical risk factors, architecture and construction materials also influence the likelihood of earthquakes. According to Applied Insurance Research, buildings made of unreinforced masonry or weak cement are more prone to experiencing structural damage during an earthquake than those constructed with reinforced concrete or updated seismic building codes; many older cities such as Boston or New York City are particularly prone due to being constructed before modern seismic building codes were implemented.
Building types also play a part in determining earthquake insurance premiums. Homes with wooden frames tend to cost less to insure than brick or stone structures due to being more elastic, thus better mitigating earthquake stresses. Furthermore, insurers may utilize simulations in order to estimate the probability that an area will experience damaging earthquakes; firms that undertake this work include CoreLogic which acquired earthquake modeling company Eqecat in 2013 as well as Verisk Analytics-owned AIR Worldwide whose offices conduct this type of analysis.
Home values and rebuilding costs also play an influential role in the cost of earthquake insurance policies, with higher values leading to higher premiums while lower values with correspondingly reduced rebuilding costs result in lower premiums. Homeowners may offset higher annual premiums by decreasing coverage limits or raising deductibles accordingly.
The Structure of Your Home
Your home structure plays a large part in how much earthquake insurance costs; brick or stone homes tend to cost more to insure than homes constructed of wood, since less elastic materials like brick and stone may sustain damage during an earthquake. Your foundation type also plays an impactful role: homes on raised foundations tend to cost less to insure due to allowing greater movement during an earthquake and potential reduced structural damage from shaking events.
An earthquake policy provides additional coverage for your personal belongings and extra living expenses, such as hotel stays and meals should your home become uninhabitable due to earthquake damage. A typical policy also covers personal property like furniture and electronics that are damaged during an earthquake; to get an idea of how much coverage one needs it’s recommended that policyholders take a personal inventory of their possessions prior to purchasing a policy.
As is common with other forms of insurance, earthquake policies generally come with deductibles that must be met before their insurer begins paying on approved claims. Deductibles typically range between 10-20 percent of dwelling coverage limit.
While earthquakes are a risk in most parts of the United States, the potential financial repercussions can be significant if your insurance coverage falls short. If you live in an area prone to seismic activity, it would be prudent to purchase earthquake coverage either through your existing homeowners/renters policy or as a separate stand-in policy – it generally comes at a very small cost and gives peace of mind that comes from knowing your home is protected against earthquake damage.
The Age of Your Home
Your decision on whether earthquake insurance is suitable for your home depends on many variables, including its age and structure as well as coverage options that you select. Premiums tend to be higher for older homes built of brick or stone construction which tend to experience more damage during an earthquake, as well as homes located near active fault lines or seismic zones.
Your home’s number of stories will have an enormous effect on its earthquake insurance premiums; typically single-story houses tend to have lower premiums due to being less likely to sustain damage during an earthquake. Earthquake policies are also calculated on an estimate rebuilding cost basis, so it is wise to know this figure prior to purchasing an earthquake policy.
As with any insurance policy, deductible is another key factor affecting earthquake policy cost. Like with most policies, selecting your deductible can have an impact on overall premium; in terms of earthquake insurance deductibles though, they typically refer to percentage rather than dollar amounts; meaning that in the event of damage caused by an earthquake, you will be responsible for paying out up to X percent of total rebuild cost before your insurer begins paying claims.
Before selecting your deductible amount, it’s essential that you consider how much can afford to pay out-of-pocket in case of an earthquake. As earthquake insurance deductibles tend to range between 20%-20% of dwelling coverage limits, it is a wise idea to carefully weigh all available options before making a final decision on an acceptable deductible figure.
Based on your needs and requirements, additional coverages beyond dwelling insurance might be appropriate. These could include personal property coverage and loss-of-use protection to cover costs associated with rebuilding to current building codes. You should also discuss manmade earthquakes caused by wastewater injection as they typically fall outside standard earthquake insurance coverage limits.
The Location of Your Home
If your home is situated in an earthquake-prone region, its structural integrity could be at greater risk of damage. To help determine just how close to a fault line it lies, consult the National Seismic Hazard Map; premiums tend to increase for homes located in high risk zones for earthquakes.
Earthquake insurance can be purchased as either an add-on to homeowner policies, or as a stand-in policy on its own. Certain insurers even provide discounts if you bundle it with other types of coverage. To determine whether purchasing earthquake coverage makes financial sense for you and your home, perform a cost-benefit analysis; take into account potential repair and replacement costs of structural damage as well as covering temporary living expenses after an earthquake hits – consulting a contractor or engineer can give estimates that can help determine if buying earthquake coverage is worth investing the added costs for added coverage or not.
Apart from your property’s location and design and construction features, its design and construction also contributes to its earthquake insurance premiums. Brick and wood structures with crawl spaces or older multi-storied homes built to modern safety standards tend to be more vulnerable.
Your earthquake insurance costs depend heavily on your deductible choice – deducted from claims payouts as part of claims payouts – which in turn determines its cost. Typically, dwelling coverage will require lower deductible payments while policies covering only personal property require higher ones.
Reducing earthquake insurance costs through increasing dwelling and personal property coverage may reduce costs; however, you should only purchase this coverage if you can manage to bear a higher deductible cost.
If you decide to purchase earthquake insurance, the most essential aspect is making sure you have enough coverage to rebuild both your home and personal belongings in case they are damaged by an earthquake. Make sure your policy includes full replacement value (which differs from market or appraisal values because it includes building materials and labor costs) when covering these claims.