An earthquake can wreak havoc on your home. Specific claims vary but consider the 2018 Anchorage earthquake in Alaska. According to the Insurance Information Institute, this 7.0-magnitude quake resulted in more than 10,500 insurance claims, with a total of $130 million in damages.
That’s a hefty chunk of change. And it’s a bill your standard homeowner’s insurance probably won’t cover. Most insurance companies require a policy endorsement or rider to pay for earthquake damage. These can be costly, but not nearly as costly as repairing your home.
If you’d be on the hook for the costs of earthquake damage, then you need to know your risk level, what you can afford if you’re not covered and how much coverage would cost you.
What is earthquake insurance?
The first thing you should know is that your standard homeowners insurance policy doesn’t cover earthquakes. The best it may do is cover the damage caused by the fires that frequently occur after earthquakes. But for damage caused by the seismic activity itself, you’ll need an additional rider, or endorsement, on your policy.
This endorsement will cover direct damage from specific seismic events, which can be a volcano or earthquake. The policy will specify a time period, usually 72 hours, for what constitutes a single event.
The endorsement will cover damage to your home and possibly, depending on your policy’s specifics, other structures, such as a detached garage or pool. You’ll also be covered for personal property up to a limit you chose when purchasing the policy.
Emergency repairs needed to prevent further damage, necessary building code upgrades and required land stabilization would typically be included in your policy. Earthquake coverage also includes “loss-of-use” coverage for additional housing expenses while your home is being repaired.
As we said, fire damage will be covered by your basic homeowners policy, but water damage will only be covered if you also have flood insurance, even if an earthquake causes it. Earthquake policies won’t 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. That doesn’t mean you shouldn’t have it, though. According to the National Association of Insurance Commissioners (NAIC), nearly half of Americans are at risk for damage from an earthquake. That means, for most of us, a risk assessment is essential.
The following table includes recent earthquake history in the 16 states that the U.S. Geological Survey has deemed at the highest risk of experiencing a major seismic event in the next 50 years.
Recorded earthquakes (magnitude 3 or greater) in the 16 highest-risk U.S. States, 2010-2015
To understand your risk, combine historical data with predictive maps and expert assessments. When it comes to earthquakes, past performance is not necessarily a good predictor of the future. California is always active and a known risk. But Missouri, for example, faces a 25% to 40% chance of experiencing an earthquake of magnitude six or greater in the next 50 years, even though recent seismic activity in the state has been minimal. Even states such as Texas and Oklahoma are seeing more activity due to hydraulic fracturing (fracking) now, so risk levels are on the rise in those areas.
A thorough assessment of your risk level will include:
- Your home’s proximity to a major fault line: A major fault line or other cause of seismic activity, such as fracking, will greatly increase your risk.
- Materials used to build your home: Homes built with masonry are more vulnerable to earthquake damage, as are framed homes with crawl spaces and multi-story dwellings.
- Your home’s earthquake resistance level: Newer homes are typically built to withstand more activity.
Understand the rates and deductibles
The rate you pay for earthquake insurance is determined by your insurance company using specific data about your house and location, which is the same for your homeowners policy. Some of the factors it analyzes, according to the NAIC, include the following:
- Your home’s proximity to a seismic zone
- Your home’s age
- Your foundation and construction type (masonry will 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 rebuild cost of your home, also known as your “dwelling coverage limit,” or “replacement 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.
Risk of an earthquake will have the biggest influence on your premium. For instance, a resident of New Madrid County, Missouri, situated right on a major fault, would pay 328% more than a resident of Jackson County, Missouri — where Kansas City is located, far from the New Madrid fault line.
Your deductible also plays a significant role in your rate, more so than with a traditional homeowners policy. Your standard policy has a predetermined deductible that may range from a low of $250 up to several thousand dollars. But most earthquake insurance deductibles are indicated as a percentage of the rebuild cost, usually between 10% and 15% of the total rebuild value of the home. So on a $300,000 home, 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 repair cost, even with insurance. And that’s just on the home itself — you also need to consider your personal property and protection on any other structures.
How much does earthquake insurance cost?
Earthquake insurance cost varies greatly depending on your location and other factors. As you might imagine, the closer you are to a significant fault or fracking site, the higher your premium. For states where there isn’t a great deal of seismic activity, you may pay between $100 and $300 annually, but states with more frequent tremblers may see premiums in the four digits.
If you live in California, which has frequent earthquakes, the California Earthquake Authority has resources to help you determine how much earthquake insurance costs. With a two-story home in Sacramento on the market for $300,000, for example, you could expect to pay $159 annually for earthquake insurance, with a dwelling deductible of 15%. However, a similarly-priced home in Brawley, in the more active southern part of the state, would cost $1320 annually for the same coverage.
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.
But many Americans live in high- or moderate-risk zones, and those zones are increasing as fracking becomes more common in areas such as Oklahoma. All it takes is one major event in these areas to cause major or even catastrophic damage to your home. 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 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.
Know where to get covered for earthquakes
Most major insurers offer earthquake endorsements, so start by talking to your agent. If they don’t offer a policy, check your state insurance department website or other statewide private agency. In California, for example, insurers sell earthquake insurance through the California Earthquake Authority. Many states have similar private or governmental agencies that facilitate coverage. Remember, earthquake coverage only seems unnecessary until the ground under your house starts shaking. Don’t wait until your house is in shambles to evaluate whether earthquake insurance is worth it for you.
Frequently asked questions
Does homeowners insurance cover earthquake damage?
In general, no, although it may cover the costs of fire damage that occurs following an earthquake. To have true coverage in the case of seismic activity, you will need a separate rider on your homeowners policy.
Why are earthquake deductibles so high?
Earthquake deductibles are high because the damage from them tends to be catastrophic, making them a higher risk for insurers. To cover costs, they need to make deductibles high.
Do you need earthquake insurance if you don’t live on a fault line?
You may want to consider it. Earthquakes are also a possibility in areas with mines and locations where hydraulic fracturing (fracking) is done. This practice has increased earthquakes in areas where there were formerly none.
Does my earthquake insurance cover flooding?
No. If you live in a flood zone, or are concerned about flooding after a quake, you’ll want to explore flood insurance. This is available through most insurance companies or FEMA’s National Flood Insurance Program.