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What is earthquake insurance?
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Earthquakes are more prevalent in the U.S. than you might think. Adding an earthquake endorsement or purchasing a separate earthquake policy may be a smart way to financially protect your home from seismic events. Bankrate’s insurance editorial team breaks down when you might need earthquake insurance and how to purchase it.
- Earthquake insurance typically requires the purchase of an additional endorsement or separate standalone policy.
- The cost of earthquake insurance depends on factors like the type of home you have, its age and the materials used in construction.
- A thorough risk assessment can help you determine what coverage you need and how much.
- A 2020 poll from the Insurance Information Institute (Triple-I) found that only 23 percent of homeowners have earthquake insurance.
What does earthquake insurance cover?
Earthquake insurance is a policy or endorsement that covers damage to your home resulting from specific seismic events. The coverage will typically specify a time period, usually 72 hours, for what constitutes a single event. Earthquake insurance is designed to cover damage to your home and possibly — depending on your policy’s specifics — other structures on your property, such as a detached garage or pool. You may also be covered for personal property up to the limit you chose when purchasing the policy.
It is important to know that your standard homeowners insurance policy doesn’t cover damage from earthquakes. The best it may do is cover the damage caused by the fires that frequently occur after earthquakes. Still, for damage caused by the seismic activity itself, you’ll need an additional endorsement, on your policy. If you live in an especially high-risk area, like California, you may need a separate earthquake insurance policy.
Emergency repairs needed to prevent further damage, necessary building code upgrades and required land stabilization are typically included in earthquake home insurance coverage. Standard earthquake coverage also includes loss of use coverage for additional housing expenses while your home is being repaired.
Fire damage caused by earthquakes will generally be covered by your standard homeowners policy because fire is a named policy peril. Earthquake policies won’t usually cover damage to your land, except for where it supports your house, or your vehicle, which should be covered if you have comprehensive car insurance.
Do I need earthquake insurance?
In most cases, lenders don’t require earthquake insurance as they do homeowner’s insurance. However, it is not because earthquakes are of no concern to homeowners. According to the National Association of Insurance Commissioners (NAIC), 42 of the 50 states are at risk of experiencing an earthquake. That means, for most of us, a risk assessment is essential.
Earthquakes are not uncommon in the U.S., and up to 16 earthquakes with a magnitude of 7.0 or higher occur on average each year. The aftermath can lead to expensive building repair and replacement costs. A joint study from the U.S. Geological Survey (USGS) and the Federal Emergency Management Agency (FEMA) found that earthquake damage in the U.S. costs an estimated $14.7 billion each year.
Another study conducted by the U.S. Geological Survey found that the following 16 states are most at risk for an earthquake:
- South Carolina
How common are earthquakes?
The table below shows the magnitude 5.0 and stronger earthquakes recorded worldwide from 2016 to 2021. While the total number of earthquakes varies, there was a significantly higher number of earthquakes in 2021 than in years past. These numbers may drop back to baseline, but this data could indicate increased earthquake activity in the future.
Recorded earthquakes worldwide (magnitude 5.0 or greater), 2016-2021
Source: U.S. Geological Survey, “Earthquake Hazards Lists, Maps, and Statistics”
To understand your risk, you'll likely want to combine historical data with predictive maps and expert assessments. Some states, like California, are known to have a high historical risk for earthquakes. More centralized states, like Oklahoma, may see more earthquakes in the future due to disposal of oil-production waste fluids.
How much is earthquake insurance?
Earthquake insurance cost varies greatly depending on your location and other factors. Like with other forms of insurance, the cost of earthquake policies will typically increase based on how at-risk your home is for an earthquake. This means that homeowners in lower-risk areas will typically pay significantly less than homeowners in high-risk areas.
If you live in California, which has frequent earthquakes, the California Earthquake Authority has resources to help you determine how much earthquake insurance costs, including an earthquake premium calculator.
Factors that impact the cost of earthquake insurance
The rate you pay for earthquake insurance is usually determined by your insurance company using specific data about your home and location, including the likelihood of earthquake damage. The NAIC cites rating factors that include the following:
- Your home’s proximity to a seismic zone
- Your home’s age
- Your foundation and construction type (masonry will mostly likely be more expensive to insure)
- The deductible you choose
- The cost to rebuild your home
- Any additional coverage (such as secondary structures)
Just as with your standard policy, your coverage should insure the total rebuilding cost of your home, also known as replacement cost coverage. This is different from your home’s sale or appraisal value. It factors in the costs of construction materials and labor if your home were to need a complete rebuild.
Earthquake risk level has a significant influence on your premium. For instance, a Missouri resident of New Madrid County, situated right on a major fault, would generally pay significantly more for earthquake insurance than a resident of Jackson County, Missouri — where Kansas City is located, far from the New Madrid fault line.
Your deductible also plays a large role in your rate. Your standard policy usually has a predetermined deductible that may range from $250 up to several thousand dollars. Most earthquake insurance deductibles are indicated as a percentage of the rebuild cost, usually between 10 percent and 15 percent of the total rebuild value of the home, so on a policy with $300,000 in dwelling coverage, you might face a deductible as high as $45,000.
If your home doesn’t incur enough damage for a full rebuild, you could be responsible for the entire dwelling repair cost, even with insurance. You might also need to consider your personal property and coverage for any other structures.
Is earthquake insurance worth it?
Not everyone needs earthquake insurance. In some areas of the U.S., the risk of an earthquake or volcanic event is almost nonexistent. Paying even a low annual premium, when compared to the limitations of your coverage and the significant deductible, may not be worth it.
However, many Americans live in high- or moderate-risk zones and may benefit from having earthquake insurance. All it takes is one major event in these areas to cause substantial or even catastrophic damage to your home. You may want to consider what it would cost you to replace your home in the event of an earthquake. Could you afford it? Further, could you absorb the costs of temporary housing or potential damage to your personal property? The price of your premiums may be high if you live in a high-risk area, but they likely won’t be higher than your replacement costs.
To know if earthquake insurance is worth it for you, weigh those costs and seek a thorough risk assessment. It may also be helpful to speak with a licensed insurance agent to help determine whether or not you need additional coverage.