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Got quake insurance? Uh, no

By Jay MacDonald ·
Wednesday, August 24, 2011
Posted: 11 am ET

The 5.8-magnitude earthquake that rocked Virginia and rattled the Eastern Seaboard Tuesday shook more than the floorboards: It also awakened millions of Americans to the fact that their homeowners insurance likely does not cover earthquakes.

As homeowners in California and other quake-prone states well know, earthquakes are generally excluded from a standard homeowners insurance policy, along with things like war and nuclear accidents. The same holds true for most business insurance policies.

Exterior of the Embassy of Ecuador in Washington

That doesn't mean you're entirely on your own when things get shaky. In most states, your homeowners insurance will still cover some of the collateral damage inside your home caused by an earthquake, such as fire from a ruptured gas line and flood from a burst water pipe. And your vehicles are covered if you carry comprehensive coverage on your auto insurance policy.

But if you want peace of mind when the walls start to shake, you'll need to take out an earthquake rider to your homeowners insurance. It's designed to cover the structural damage to foundations and structures caused by the quake itself. If your home insurer does not offer a rider to your existing policy, you can shop for an earthquake supplement elsewhere.

According to the Insurance Information Institute, most insurance supplements include a deductible that is normally based on a percentage of the home's replacement value rather than a set dollar amount. Earthquake deductibles can range from 2 percent to 20 percent of the home's value, the III says.

The cost of earthquake coverage varies depending on location and the age and type of home. Older buildings typically cost more to insure than newer ones, and wood-frame houses are cheaper to insure than brick because wood better withstands earth movement.

According to III, an earthquake supplement might cost $1 to $3 per $1,000 worth of coverage for a wood-frame home, or $3 to $15 per $1,000 for a brick home in the Northwest. On the East Coast, coverage might cost less than 50 cents per $1,000 for a wood-frame home, and 60 cents to 90 cents for a brick home.

Do you need the coverage? Good question. About 5,000 earthquakes of varying magnitude occur each year in the United States, 39 states have experienced quakes since 1900 and earthquake damage has been reported in all 50 states, according to III figures.

On the other hand, most property owners take a pass on quake coverage. Even in quake-centric California, just 12 percent of homeowners carry earthquake coverage.

Whether you seek earthquake coverage or not, it's a good idea to actually read your homeowners insurance policy. They're pretty easy to understand and you'll feel more confident knowing exactly what's over your head.

Because as the Virginia quake illustrated yet again, regardless of where you live, it can happen here.

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1 Comment
Debra James
August 25, 2011 at 12:16 am

You also need to tell people that the deductible for the typical earthquake insurance policy is 10% of the insurance value of the home. So, if your home has an insured value of $300,000, a homeowner will be responsible to pay for the first $30,000 worth of damage before the insurance starts to pay.

In 1989, after the Loma Prieta earthquake in the Bay Area there were a lot of people who received nothing or a very small pay out from their insurance companies, and that was after years of paying for the insurance with no claims. Many of those homes were never repaired, because the homeowner couldn't afford to do the work.

In my opinion, earthquake insurance is best when you suffer insignificant property damage or loss. If a person decides to get this type of coverage, they need to also have savings to pay for their deductible.