Earthquake Insurance – Is It Worth It?

Earthquake Insurance – Is It Worth It?

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Earthquake Insurance In California

Many homeowners struggle with the decision of whether or not to obtain earthquake insurance (typical homeowners policies do not include earthquake insurance). In California, only about 12-17% of homeowners carry earthquake insurance, despite the ongoing fear that “the big one” is coming. In this article, we explore the history of earthquake insurance, the costs, the benefits, and why most homeowners opt against obtaining earthquake insurance.

History of Earthquake Insurance in California

Earthquake insurance in California changed dramatically after the Northridge earthquake of 1994. Before then, issuers of homeowners insurance were also required to offer earthquake insurance. After 1994, many insurance providers stopped offering earthquake insurance, in response to which California created the California Earthquake Authority, a state-run earthquake insurance pool.

Initially, policies offered by the CEA were extremely bare-bones. They carried deductibles of 15%, and policies covered only a building’s infrastructure, and specifically excluded the internal contents of buildings. Additionally, policies provided minimal coverage for alternate living arrangements, meaning those with insurance would have to either live in homes that were being repaired, find very cheap alternatives, or find a generous friend/relative who was willing to tolerate a house guest. Overall, the policies carried high cost and limited coverage, resulting in the majority of homeowners opting against obtaining earthquake insurance.

California Earthquake Insurance Policies Today

Today, earthquake insurance policies provide more coverage, offering deductibles as low as 5%, and providing coverage for internal contents and alternate living expenses. Some insurers also provide incentives for further reduction in premiums, such as retrofitting foundations by bolting or bracing the structure to the foundation.

The combination of the premium cost and deductible expense, however, continues to dissuade homeowners from obtaining earthquake insurance. Premiums typically range from $800 to $5,000 annually for single family homes. Those premiums are coupled with deductibles that can range from 5% to 20%. As a result, for homeowners who own property valued at $500,000, the policy carries with it the annual premium cost as well as the deductible of up to $100,000. For most people, that price-tag, when combined with the relatively low probability of “the big one” actually occurring, can seem exorbitant.

As a result of the high-cost high-deductible expense of earthquake insurance, the majority of California homeowners continue to opt against earthquake insurance. The cost is typically justifiable only in a “worst case scenario” earthquake, in which case many homeowners (perhaps falsely) believe that the government will provide funding for disaster recovery. Unless and until the deductible and premium expenses begin to decline, homeowners will likely continue to opt against homeowners insurance despite continuing fears that “the big one” is coming.

For more information on how Esquire Real Estate Brokerage, Inc. can help you in the Los Angeles real estate market, feel free to give us a call at 213-973-9439 or send us an email at info@esquirereb.com.

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