Earthquake insurance | Bank

Earthquakes can happen anywhere and at any time. If you do not have earthquake insurance, you may be liable to pay your losses out of pocket. Standard homeowner insurance does not usually cover earthquake losses, as many insurance companies require the adoption of an additional or earthquake damage rider policy.

On March 18, 2020, Salt Lake City, Utah, was hit by an earthquake of magnitude 5.7. The disaster, dubbed the 2020 Magna Earthquake, caused $629 million in damages to private and public buildings. Although earthquakes are relatively common in UT, some residents may mistakenly assume that the damage is covered by their home insurance. Being exposed to an earthquake without proper coverage can be devastating. To avoid high out-of-pocket costs, learn more about earthquake insurance and how it can help you prepare for the unexpected.

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Earthquake insurance usually requires the purchase of an additional rider or support. The cost of earthquake insurance depends on factors such as the type of home you own, its age, and the materials used in construction. A comprehensive risk assessment can help you decide what coverage you need and how much. What is earthquake insurance?

Earthquake insurance is a policy or declaration that covers direct damage caused by specific seismic events. Coverage will specify a period of time, usually 72 hours, for what constitutes a single event. Earthquake insurance will cover damage to your home and possibly, depending on the details of your policy, other structures on your property, such as a garage or separate swimming pool. You will also be covered for personal belongings up to the limit you chose when purchasing the policy.

It is important to know that a standard homeowner’s insurance policy does not cover earthquakes. The best it can do is cover the damage caused by fires that frequently occur after earthquakes. However, for damage caused by the seismic activity itself, you will need an additional rider or endorsement of your policy. If you live in a high-risk area, you may need a separate earthquake insurance policy.

Emergency repairs needed to prevent further damage, necessary building code upgrades and required ground stabilization are usually included in your home earthquake insurance coverage. Earthquake coverage also includes Loss of Use coverage to cover additional housing expenses while your home is being repaired.

As mentioned earlier, fire damage caused by earthquakes will generally be covered by your primary homeowners policy. Earthquake policies will not cover damage to your land, except where it supports your home or car, which must be covered if you have comprehensive car insurance.

Do I need earthquake insurance?

In most cases, lenders do not require earthquake insurance the way they do home insurance. That doesn’t mean you shouldn’t have it, though. According to the National Association of Insurance Commissioners (NAIC), Americans in 84 percent of states are at risk of experiencing an earthquake. This means, for most of us, risk assessment is essential.

A USGS study found that the following five states are most at risk of an earthquake:

Alaska Arkansas California Hawaii Idaho

Although many Americans could benefit from additional earthquake protection, people in these five states in particular should consider purchasing an earthquake endorsement or policy to strengthen themselves against what could be a significant financial loss.

The table below shows earthquakes of magnitude five and above recorded around the world from 2016 to 2021. While the total number of earthquakes varies, there were much more earthquakes in 2021 than in past years. These numbers may drop to a baseline, but this data could indicate increased earthquake activity in the future. Earthquake insurance may be more important now than ever.

Earthquakes recorded worldwide (magnitude 5 or greater), 2016-2021 2016 1,550 130 16 0 1,696 2017 1,455 104 6 1 1,566 2018 1,674 117 16 1 1,808 2019 1,492,135 9 1 1,637 2020 1,312 112 9 0 1,433 2021 2,047 140 16 3 2,206

Source: USGS, “Earthquake Hazard Lists, Maps, and Statistics”

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 indicator of the future. Some states such as California are known to have a high active earthquake risk. Even states like Texas and Oklahoma are seeing more activity from hydraulic fracturing, so risk levels are rising in those areas.

Understand prices and discounts

The price you pay for earthquake insurance is determined by your insurance company using specific data about your home and location, the same rate as your homeowners policy. NAIC cites rate factors which include the following:

Proximity of your home to a seismic zone Age of your home Your organization and type of construction (construction will be more expensive to insure) Deductible amount you choose Cost of rebuilding your home Any additional coverage (eg secondary structures)

Just as with your standard policy, you should ensure that you are covered for the total cost of rebuilding your home, also known as replacement cost coverage. This is different from the sale or appraisal value of your home. It counts in the costs of building materials and labor if your home needs a complete rebuild.

Earthquake risk will have the greatest impact on your premium. For example, a resident of New Madrid County, Missouri, who is directly at fault, would pay 328% more than a resident of Jackson County, Missouri—where Kansas City is located, away from the New Madrid fault line.

Your discount also plays an important role in your price, more so than it does in a traditional homeowners policy. Your standard policy has a predetermined discount that can range from $250 to several thousand dollars. But most earthquake insurance deductions are indicated as a percentage of the rebuilding cost, and it’s usually between 10% and 15% of the total home rebuilding value, so on a $300,000 home, you could face a deduction of up to $45,000.

If your home does not incur enough damage to rebuild completely, you may be liable for the entire cost of the repair, even with insurance. And this is only in the house itself – you also need to take into account your personal belongings and your protection over any other structures.

How much does earthquake insurance cost?

The cost of earthquake insurance varies greatly, depending on your location and other factors. As you might imagine, the closer to the location of a major fault or crack, the higher your premium. This means that homeowners in low-risk areas will pay significantly less than homeowners in high-risk areas.

If you live in California, which experiences frequent earthquakes, the California Seismic Authority has resources to help you determine how much your earthquake insurance costs, including an earthquake premium calculator.

Is earthquake insurance worth it?

Not everyone needs earthquake insurance. In some areas of the United States, the risk of an earthquake or volcanic event is virtually non-existent. Paying a low annual premium, when compared to the limitations of your coverage and a hefty deductible, may not be worth it.

But many Americans live in high- or moderate-risk areas, and those areas are increasing as fracking becomes more common in areas like Oklahoma. All it takes is one major event in these areas to cause severe or even catastrophic damage to your home. Consider the cost of replacing your home in the event of an earthquake. Can you bear it? Furthermore, can you absorb the costs of temporary housing or potential damage to your personal property? Your premiums may be high if you live in a high-risk area, but they won’t be higher than your replacement costs.

To see if earthquake insurance is worth it or not, weigh these costs and find a comprehensive risk assessment.

Frequently asked questions Does homeowners insurance cover earthquake damage?

Generally, no, although it may cover the costs of fire damage that occurs after an earthquake. To get real coverage in the event of seismic activity, you’ll need a separate rider for your homeowners policy. You may need a separate policy if you live in a high-risk area.

Why are seismic discounts so high?

The deductions for earthquakes are high because the damage caused by them tends to be catastrophic, which makes them more dangerous for insurers. To cover the costs, they have to raise the deductions.

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 sites where hydraulic fracturing (fracking) takes place. This practice led to an increase in earthquakes in areas where they had not previously existed.

Does my earthquake insurance cover floods?

no. If you live in a flood area, or are concerned about flooding after an earthquake, you’ll want to explore flood insurance. You can purchase flood insurance through the National Flood Insurance Program or some private carrier.

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