Earthquake Insurance

[Another Reader]

I have it. Living in the Bay Area I felt that I didn't want to do without it. It's about $2400/yr and annoys me every time I pay the bill. I guess I've paid around 50k now over the years. I'd have to have over 250k in damage to break even. Every time I think of not renewing I'm convinced that the big one will hit the next month... And I'm not even convinced there would be enough money to cover all the damage area wide. But I'd rather get most or half of my house value back than have nothing after a quake.

How likely are you to have nothing? Do you live in a liquefaction zone? Is your house old and not bolted to the foundation? Are you near the fault zone? In your shoes, I would evaluate the hazard before I wrote the check.

 

[Freedom56]

I really don't want it, but DW asks about it every several months. I tried to tell her that the camper with 4x4 pickup truck is our earthquake insurance... but you can guess how far that gets me.

My hang up is the 15% deductible ($75,000 on a $500,000 house). The home is relatively new (3 years old), and very high quality construction. It was engineered to withstand some level of earthquake, but probably not the "Big One" that will eventually happen on the west coast where we live (WA). The one year premium we were quoted was $780 back in 2017.

The other issue is the game about earthquake damage vs. water damage where the insurer refuses to pay water damage because earthquakes don't cause water damage or some such thing. We are less than a mile from the puget sound.

I think we'd have to get a pretty direct hit to be a total loss.

The house is paid for, and there are no plans or yet a need to monetize the home's value for income.

So would you get the insurance or not? And what else should I be considering, that I might not be?

We have earthquake insurance and our deductible is $148K (building and contents only). We pay about $1100 per year for earthquake insurance for a home valued at $987K excluding land and external structures. What we are insuring is a complete wipe-out of our home which we own free and clear. Damage estimates will exceed the deductible in such cases. I know people who had earthquake insurance during the Northridge Earthquake (they live in Northridge) and their house was totaled. What they did was take the cash settlement after the deductible and managed their own reconstruction (which you have the option of doing) and were able to re-build their home with far less financial impact. Most people I know who had insurance, took that route. Some even ended up with surplus funds. If you use the insurance companies contractors, you will pay the full deductible and their inflated prices. I also know many people who didn't have insurance and their homes are still damaged from the 1994 earthquake.

Yes it's true that very few people carry earthquake insurance, but very few people in Southern California own their homes free and clear. People are free to choose their own risk tolerance. It's far better than paying interest to a bank.

 

[ziggy29]

Yes it's true that very few people carry earthquake insurance, but very few people in Southern California own their homes free and clear. People are free to choose their own risk tolerance. It's far better than paying interest to a bank.

Fair point. If someone still owes a huge amount of money on the mortgage, and if they have less equity than the insurance deductible, just walking away and defaulting is an option.

For what it's worth, in low risk areas standard renters' insurance might provide contents coverage for earthquakes, without even a rider or supplemental purchase.

 

[bmcgonig]

How likely are you to have nothing? Do you live in a liquefaction zone? Is your house old and not bolted to the foundation? Are you near the fault zone? In your shoes, I would evaluate the hazard before I wrote the check.

House is old and on a hill in Marin. Hazard too difficult to evaluate even if I'm on bedrock. The odd of disaster are slim but the consequences are enormous.
I guess I see it as buying a put option for 0.1% of the house value to guard against a massive crash....ie my house going down the hill [emoji3526]

 

[Another Reader]

House is old and on a hill in Marin. Hazard too difficult to evaluate even if I'm on bedrock. The odd of disaster are slim but the consequences are enormous.
I guess I see it as buying a put option for 0.1% of the house value to guard against a massive crash....ie my house going down the hill [emoji3526]

Do you think the City or County would let you rebuild on your lot if the house were destroyed?

 

[bmcgonig]

Do you think the City or County would let you rebuild on your lot if the house were destroyed?

I have no idea.

 

[ziggy29]

House is old and on a hill in Marin. Hazard too difficult to evaluate even if I'm on bedrock. The odd of disaster are slim but the consequences are enormous.
I guess I see it as buying a put option for 0.1% of the house value to guard against a massive crash....ie my house going down the hill [emoji3526]

Have you confirmed that you would be covered by such an event? Many earthquake policies only cover damage from the shaking itself and don't cover damage from landslides or mudslides, even if they are triggered by the earthquake.

 

[Nature Lover]

I'm in the Bay Area and near the Hayward Fault; I do carry EQ ins, and starting in 2019 it's a CEA policy (Amica stopped their own program and joined CEA). Cost is ~$1.6k/yr (similar to what Amica charged), deductible for the house is ~$50k. As the property owner (free and clear), I think the $1.6k is good peace of mind insurance. A loss >$50k is obviously unlikely, but I like knowing if a big one hits and I happen to be located in an area that sustains significant damage, my downside is limited to some degree.