Specialty Insurance

Earthquake insurance: Weathering the next natural disaster

By February 12, 2018 No Comments

Do you have Earthquake insurance? If you own a home or business in California or any of the other 16 high-risk states, you should.

earthquake mapOver the last several years, California has been ravaged by natural disasters from fires to floods. In fact, 2017 is said to be the worst year for wildfires in California’s history. So it’s hard to imagine yet another natural disaster striking the state. But if history is any indicator, California is long overdue for another major earthquake.

A major earthquake is described as having a magnitude of 7 or greater, something Californians haven’t experienced since 1992 when a 7.3 magnitude quake rocked the town of Landers, Calif., killing three people and injuring hundreds. For comparison, the 1989 Loma Prieta quake, which destroyed parts of the San Francisco Bay Bridge, and the 1994 Northridge temblor, which caused numerous freeways to collapse, registered magnitudes of 6.9 and 6.7, respectively.

While earthquake readiness is part of our state’s culture, you can never be too prepared for a major natural disaster.

What is earthquake insurance

Every homeowner in California should have earthquake insurance. Earthquake insurance is a separate property insurance policy that protects your home and assets against damage caused by an earthquake. Most homeowners insurance policies do not cover earthquake damage. Since the State of California requires all insurance carrier that sell homeowners insurance in the state to also sell earthquake insurance, a public-private entity known as the California Earthquake Authority was created to reduce an insurance carrier’s risk. We’ll talk more about the pros and cons of the CEA in a bit.

Earthquake insurance will pay for the cost of damages that were the result of an earthquake. Like most property insurance policies, there are three main areas of coverage: The dwelling (your home), personal property (your belongings) and additional living expenses (ALE).

Earthquake insurance: How to be prepared

Californians are taught earthquake preparedness starting in grade school. Earthquake drills in which students are instructed to duck and cover are common. But for some reason, when it comes to protecting their largest asset from earthquake damage, Californians are woefully unprepared.

When purchasing earthquake insurance, there are several things you need to know. For starters, you’ll have to choose between a policy from the California Earthquake Authority, or a more expensive “enhanced” plan from a private carrier, such as Chubb, Pure or a standalone earthquake carrier. Here are a few options to consider

California Earthquake Authority

Since California requires insurers that sell homeowners insurance in California to also sell earthquake insurance, the CEA was formed to help mitigate a specific insurer’s risk. If you purchase an earthquake policy through your homeowner’s insurance provider, there’s a good chance it’s through the CEA. The CEA is a voluntary program that collects the premiums paid to private carriers to cover claims associated with an earthquake. However, the CEA is clear that no matter how much insurance coverage you buy, once the agency’s pool funds are gone, no more claims will be paid. California does not financially back the CEA.

Premium Earthquake Insurance

If the risks associated with the CEA are too great for you, you will want to consider earthquake insurance through a private high-end carrier, such as Chubb or Pure. These companies specialize in providing insurance for high-net-worth individuals. One of the benefits of opting for this type of earthquake insurance is the ability to enhance your coverage with extended additional living expenses. Additional living expenses are reimbursable expenses paid by the insured when their home is unfit to live in. This includes travel, meals and lodging expenses.

What’s covered and what’s not covered

Here’s a list of things an earthquake insurance policy does and does not cover:

Covers: Doesn’t Cover:
Structural repairs to your home Fire or floods caused as a result of the earthquake (this may be covered by your homeowner’s policy)
Personal property, such as clothing, furniture, and electronics that are stored inside the home. Damage to cars (your auto insurance may cover that).
Additional living expenses, such as hotel bills. Brick or stonework used on your home’s veneer.

How to buy earthquake insurance

If you’re considering buying earthquake insurance, it’s important you speak with your insurance broker today. Many factors go into determining your earthquake insurance premium, including ZIP code, the age of your home and your proximity to fault lines. Speak with a Brashears Insurance agent today to make sure you’re properly covered for “the big one.”