Earthquake Insurance Explained
Many people are surprised that earthquakes are not covered by a standard homeowners insurance policy. It’s easy to assume that homeowners policies cover all home damage. People often think homeowners insurance policies cover appliance repairs and replacements. They may think they cover flooding. But the fact is homeowners policies cover none of these.
The reason is simple: homeowners insurance policies are designed to cover specific types of damage, such as fire or burglary. Insurance companies use actuarial tables to establish premiums. If these policies were written to cover appliances, floods, and earthquakes, homeowners would face unaffordable premiums. To keep premiums affordable, exclusions must be included.
That does not mean homeowners cannot get coverage for these exclusions. Home warranties cover appliances. Special flood insurance can be purchased in addition to a standard homeowners policy. Earthquake coverage is also available to all homeowners as an additional coverage option.
This is great news because earthquakes can strike anywhere. It is especially great news in earthquake prone areas like California.
Earthquake insurance works much like a standard homeowners policy in several ways. Both have deductibles and exclusions. Both also cover structural damage, personal possessions, and loss of use.
Earthquake insurance deductibles are applied as a percentage of the structure value, instead of as a dollar amount. For example, while a homeowners policy may have a $1,000 deductible, regardless of the property value, an earthquake policy for a $100,000 house is 10 percent of the deductible for a $1 million house. Similarly, personal possessions coverage is also limited by a percentage of the structure’s value. Conversely, loss of use limits are set by a dollar amount.
The major benefits of earthquake coverage are replacement for structural damage, property damage, and loss of use, which would not be covered by a standard homeowners insurance policy. Earthquake damage can devastate a home, and without coverage, most families are unable to afford the repair costs.
Residents of hurricane prone areas benefit greatly from earthquake policies. In fact, in some areas, such as California, homeowners who add earthquake reinforcement measures to their homes are eligible for substantial discounts on their earthquake coverage.