Earthquakes happen regularly. Let’s break down the annual statistics worldwide:
Frequency Name Magnitude
1 Great 8.0+
18 Major 7.0 – 7.9
120 Large 6.0 – 6.9
1,000 Moderate 5.0 – 5.9
The Earthquakes Department of Conservation notes that California generally gets two or three earthquakes large enough to cause moderate damage to structures (magnitude 5.5+) each year. The San Andreas fault line is nearly as big as the entire state and an 8.2 magnitude earthquake is expected in the near future.
These are some terrifying statistics with science proving that California is a frequent victim of Earthquake Disasters. The scariest fact is that we are just waiting until the day we feel that San Andreas Fault Line shake our world upside down.
Knowing these statistics, we want to dispel 4 misguided beliefs of earthquake insurance:
1. Homeowners Insurance Covers Earthquake Damage
Many consumers in California believe that purchasing a homeowner’s policy automatically includes earthquake insurance. It does not.
Think about it like this. We are the first five settlers to a new area and we each helped the other build a home of considerable value. We could pool 1/5 of our money each and put it into a fund to replace a home if a unique accident occurred, such as a fire, to another’s home. However, if a massive disaster like a flood or earthquake occurred all 5 homes would need 100% replacement. For this reason, it is not possible to insure fire in the same way earthquakes and floods are insured. That makes these exposures unique and thus they are typically their own policy or specific endorsement added to the homeowner’s policy.
2. Earthquake Insurers Require High Deductibles
We do not buy earthquake insurance to protect us from the small tremors. This insurance is meant to protect us from those catastrophes that are going to devastate a large group. Catastrophes like a severe earthquake that will bring your entire home crumbling down. More than likely, everything down to the foundation is going to need to be replaced.
Now let’s go to the numbers: Let’s say your home is worth $1,000,000 and you have a 10% deductible, that’s 100,000 that the insurance company is not giving you back. It seems like a lot considering this is just the deductible.
But what if you did not have the coverage at all? You will be paying $1,000,000 instead of $100,000. That is a significant difference. If you have Earthquake Insurance, you will be receiving a check to replace your home minus your deductible. That is powerful and usually cost effective.
And good news here! There are now insurers offering lower earthquake deductibles, so it makes more sense now than ever to consider this coverage.
3. The Government Takes Care of Natural Disasters:
Depending on the magnitude of the Earthquake the government may assist. This typically only occurs if you qualify. Meaning those that could afford the coverage prior to the earthquake are last in line for any government handouts. Even if you qualify and accept a disbursement, you will likely owe the money back. As you have seen with the other natural disasters and government aid, many people are still left in financial crisis’ or even homeless. It is much too risky to rely on federal aid.
4. Earthquake Insurance is Too Expensive
Insurance is based on risk statistics that have been established over long periods of time mapping nature disasters. Earthquake premium and/or deductibles are typically higher because chances are that most of the homes in the area will some form of loss. Chances are the big earthquake will happen sooner than later.
The movie San Andreas dramatically portrayed the essence of what happens during a quake of this magnitude. Of course, it was over-dramatized for Hollywood effect, but the point is the same. Earthquakes are severe and devastating. They are heartbreaking. They are scary. Even worse, there is no earthquake team, like there is for fires. No one can stop your home from crumbling down once it starts happening. The earthquake cannot be “put out.”
Insurance companies are smart and they know the statistics. They have made sure that it is in their capacity to protect and restore their clients when the big one hits. It is time for us as consumers to become educated on this topic and purchase earthquake insurance.
You are paying a dime for a dollar, a little bit extra for peace of mind, and a promise that in this moment of absolute despair when disaster strikes you have built hope into your insurance program.