Currently in California it is estimated that only 17% of homeowners have earthquake insurance. Why the lack of interest for coverage in the earthquake capital of the United States? Some argue this stat is due to a misconception of the likelihood of an earthquake, the role of FEMA following a natural disaster (FYI no free money here, only loans), and others believe most homeowners don’t have a great grasp on their current coverage. Let’s take a look at earthquake coverage—the history and likelihood of the next “big one”— so that you can answer the question: is earthquake insurance worth it?
The History of Earthquake Coverage
Most of us remember the ’94 Northridge quake. This earthquake devastated the region—freeways were closed for months (with some overpasses completely destroyed), apartments collapsed and thousands of homes were severely damaged or destroyed (we are talking roughly 82,000!). And following the quake, there was nearly $12.5 billion in insurance claims (yeah, that’s with a B), leaving many insurance companies to face financial hardships. Their bet that the chance of an earthquake was remote did not pay off. It’s really not a wonder that many homeowners insurance companies decided to completely stop offering earthquake coverage to California residents. Changes in the insurance add-ons of today are a direct result of this quake.
What is Earthquake Insurance?
Today, homeowners have to seek out an insurance add-on to cover damage caused by an earthquake, as many standard homeowner’s insurance policies no longer offer additional earthquake insurance. The cost of earthquake insurance varies depending on your location, with the cost in California averaging at around $800 a year (of course it can be triple that in San Francisco, probably because the city is always working towards that “most expensive” title). The level of coverage and your deductible of course differs by policy, but the basic premise is that earthquake insurance covers your home in the event of damage caused by a quake.
But When Will the “Big One” One Hit?
Unfortunately, we don’t have a magic eight ball that will actually predict the next quake. I’ve tried and so far it’s mostly come up “Reply hazy, try again.” And predictions are even muddled among top scientists. Last year, NASA’s California-centered Jet Propulsion Laboratory predicted a huge earthquake will take place before April, 2018. The US Geological Survey says they aren’t so sure of the findings or JPL’s methods. It seems, at least for now, we aren’t able to predict the next quake, but isn’t that what insurance is for? To protect us against the unthinkable. I may pay hundreds a year in auto insurance, but personally, I’m not really looking to make good on those payments with an accident. For some, peace of mind alone makes earthquake insurance worth it.
So Should You or Shouldn’t You Get Coverage?
Honestly, is earthquake insurance worth it? That’s an answer you’ve got to determine for yourself. Hopefully this post has been useful in deciding!
RT: ”99.9% chances of ‘big’ L.A. earthquake soon? Why NASA and USGS can’t shake on it”
Insurance Journal: “Twenty Years Later Big Lesson From Northridge Quake Lost”
Insurance Information Institute: “Earthquakes: Risk and Insurance Issues”
Los Angeles Times: “Rethinking Your Stance on Earthquake Coverage”
KQED News: “Is Earthquake Insurance Worth the Cost?”