Earthquake Insurance

[SnowballCamper]

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?

[Another Reader]

Who is the provider? How are they backed? Is there a reinsurance market for the product?

I have skipped the CEA insurance here in California. Early on, there was no money behind it. As the pile has grown, so has the risk - more buildings and more built in harm's way. I'm not confident claims will pay out 100 percent if the earthquake causes widespread severe damage. I'm up in the hills, supposedly on bedrock. Unless the earthquake epicenter is near me or the waves interact to increase the amplitude and damage at my property, I don't expect the structures to be total losses. And the insurance is expensive. The high deductible, the low probability of complete destruction, plus the anticipated reduced payout leads me to conclude the insurance is not worthwhile in my situation.

[HarveyS]

Yes, I would buy it. I have earthquake insurance in IL.

[Walt34]

When we bought this house we did get earthquake insurance, simply because it was mentioned, I was thinking "this is one more thing they can't weasel out of paying a claim on" and this being northern West Virginia, not exactly earthquake central, the cost was dirt cheap, adding barely two digits to the policy.

Although a few years ago there was an earthquake in Virginia that could (barely) be felt here. I didn't notice it but some other people did.

[tb001]

Wow, I can't imagine having EQ insurance outside of the west coast! We have it now. The cost was <$1k/yr for a large amount of coverage. It's a significant % of our net worth, so it made sense to us. In the Bay Area, where the cost was significantly higher and we had less in the house, we did not. But I stressed about it all the time.

[calmloki]

Quote:

Originally Posted by Another Reader Who is the provider? How are they backed? Is there a reinsurance market for the product? I have skipped the CEA insurance here in California. Early on, there was no money behind it. As the pile has grown, so has the risk - more buildings and more built in harm's way. I'm not confident claims will pay out 100 percent if the earthquake causes widespread severe damage. I'm up in the hills, supposedly on bedrock. Unless the earthquake epicenter is near me or the waves interact to increase the amplitude and damage at my property, I don't expect the structures to be total losses. And the insurance is expensive. The high deductible, the low probability of complete destruction, plus the anticipated reduced payout leads me to conclude the insurance is not worthwhile in my situation.

We just got multiple letters from USAA urging us to accept earthquake insurance. We're going to pass, even though La Quinta is neatly tucked in between the San Andreas and San Jacinto fault lines. We would be paying $390 for insurance on a $300,000 policy with a 15% deductible - the house would need to sustain $45,000 in damage before the insurance paid it's first dollar on a $45,001 bill. We paid a bit more than three times that much when we bought it at auction in 2010. Long as we aren't crushed inside it it's destruction would have very very little effect on our lives and finances.

[Teacher Terry]

We live in Nevada and don’t know anyone that has it due to price and high deductible. I am sure it’s cheap in IL.

[RobbieB]

I buy it every year with a big deductible, it's cheap.

[Another Reader]

After looking at the cost to rebuild in the areas hit by wildfires in the last few years, I upped my fire insurance by a substantial amount. This is the third time I have done that in the last ten years, as rebuilding costs have skyrocketed. I can no longer get guaranteed replacement cost. The maximum is 20 percent over the insured amount.

My house is in the hills, between two narrow canyons. If a fire starts in either canyon, depending on the direction of the wind, I think we could have a Santa Rosa type situation in which a wildfire spreads rapidly. I all too well remember the Berkeley-Oakland Hills fire of 1991, which overcame people as they tried to escape. If the winds had not died down, many more structures would have burned. My parents' house was about two blocks away from the the edge of the fire. Luckily, their property escaped damage.

These fires are devastating, but they are local, and insurance can and will cover losses. I am comfortable buying more insurance to cover my loss. A large, damaging earthquake will do tens of billions in damage, maybe more. I'm not convinced that the damage will be covered by the insurance.

[SnowballCamper]

Quote:

Originally Posted by calmloki We just got multiple letters from USAA urging us to accept earthquake insurance. We're going to pass, even though La Quinta is neatly tucked in between the San Andreas and San Jacinto fault lines. We would be paying $390 for insurance on a $300,000 policy with a 15% deductible - the house would need to sustain $45,000 in damage before the insurance paid it's first dollar on a $45,001 bill. We paid a bit more than three times that much when we bought it at auction in 2010. Long as we aren't crushed inside it it's destruction would have very very little effect on our lives and finances.

Hmmm, maybe reduce my coverage amount, so the deductible isn't as bad. This could offset my assessment that the probability of a total loss is very small. Then my premium is less, and coverage kicks in at lower damages.

Thanks to all the other commenters also.

As for the reinsurance problem... I don't think DW is interested in that discussion, and I suspect there will be loud calls for government support in a large event.

[Another Reader]

Quote:

Originally Posted by calmloki We just got multiple letters from USAA urging us to accept earthquake insurance. We're going to pass, even though La Quinta is neatly tucked in between the San Andreas and San Jacinto fault lines. We would be paying $390 for insurance on a $300,000 policy with a 15% deductible - the house would need to sustain $45,000 in damage before the insurance paid it's first dollar on a $45,001 bill. We paid a bit more than three times that much when we bought it at auction in 2010. Long as we aren't crushed inside it it's destruction would have very very little effect on our lives and finances.

IIRC, my original earthquake offer with the 15 percent deductible was $1.8k. House would have been insured based on a replacement cost of $750k. Good luck getting this house rebuilt for that with current rebuilding costs. I am paying $1.2k for the increased homeowner's insurance of $1.0M, so probably over $2k for earthquake with the increase in coverage.

[Another Reader]

Quote:

Originally Posted by SnowballCamper Hmmm, maybe reduce my coverage amount, so the deductible isn't as bad. This could offset my assessment that the probability of a total loss is very small. Then my premium is less, and coverage kicks in at lower damages. Thanks to all the other commenters also. As for the reinsurance problem... I don't think DW is interested in that discussion, and I suspect there will be loud calls for government support in a large event.

My understanding is the earthquake insurance is tied to your homeowner's insurance cost estimate under the CEA. No idea how things work in Washington, best to ask your insurance agent.

[Souschef]

i also do not have EQ insurance because of the high deductible.
Sad story. One of my neighbors sold his condo in my development because we did not have earthquake insurance. He bought a condo near his brother that did have insurance.
When the Northridge quake hit, and we were 3 miles from the epicenter, his old unit did not sustain any damage. His new place was substantially damaged, and it took 2 years for the insurance to rebuild it.

[cathy63]

We have it through our HOA policy. It costs $1476/yr with a 20% deductible for four units/two buildings.

[Souschef]

Quote:

Originally Posted by cathy63 We have it through our HOA policy. It costs $1476/yr with a 20% deductible for four units/two buildings.

The problem we ran into is that each building is subject to the deductible, not each unit!
For example, if each unit was worth 100K, you would have to have 40 K in damage before they would pay a cent.
In our case, our condo had clumps of buildings with 4 to 7 units.

[RobbieB]

It's catastrophic loss insurance. Sorta like max out of pocket medical.

Mine is like $200/yr. But I'm out in the central valley and not close to big faults.

[Scuba]

Most people we know in CA don’t carry EQ insurance due to high cost and deductibles plus low probability of a loss that big. Our HOA does carry it so we have it .

[RetireRay]

You need to find out what your house is built on top of. Is it bedrock or is it land fill? That can make a huge difference in a major earthquake.

[VanWinkle]

In California, I may buy it. In Illinois, I do not. I am just playing the odds and also would think there will be plenty of cheap government assistance if an area is clobbered by an earthquake. I have been wrong before

[Chuckanut]

For most of us our house is our most valuable assets. Many people are thinking of selling the big house and buying a smaller place to help fund their retirement. Assuming they live in an active fault area, why would they put that at risk by not having earthquake insurance?