Thinking of Buying Earthquake Insurance? Earthquake Facts, Pros and Cons

Earthquake insurance a devastated home after earthquake
••• John Crux Photography / Getty Images

Unless you live on the west coast you probably aren't too worried about an earthquake, which makes it hard to justify buying earthquake insurance.

It may surprise you to know that even in states like California, the statistics from the California Earthquake Authority show that although there's increased public knowledge about the risk of earthquakes, only 10 percent of Californians purchase earthquake insurance, leaving 90 percent of Californians uncovered. So if you don't have earthquake insurance yet, and are wondering if it is worth paying for, you're clearly not alone.

Earthquake insurance on your building is not included in even the best homeowners' insurance. If you want earthquake insurance you have to buy it separately or ask to have it added to your policy by endorsement. When you don't have earthquake insurance, you may be at risk of a major loss. Following are some facts about earthquakes, the real risks, and some pros and cons of earthquake insurance.

Are You Really At Risk of an Earthquake?

The first thing you need to understand when considering purchasing earthquake insurance is what the real risks are for you where you live.

Insurance is about protecting yourself and the financial investment you have in your personal property. By not having earthquake insurance, you place yourself at risk of losing everything or sustaining damages to your property that you can not afford to repair if your home is damaged by an earthquake. 

According to the U.S. Geological survey, the U.S. has about 20,000 earthquakes a year and properties in as many as 42 states are considered at-risk. That's a lot more than just California.

Which Geographical Areas Are at Risk of Earthquake Damage? 

If you have doubts that an earthquake could damage your property, or don't think that an earthquake would affect you where you live, you can check out the frequency of damaging earthquake shaking map.

You may be surprised to find that you have a fault line closer to you than you think. If you prefer to check the list by state of earthquakes, you can check that here and click the links for the state you are interested in at the bottom of the page.

The Insurance Information Institute has an excellent article which outlines the actual risks in each of the regions of the United States that can be complementary to your search for the pros and cons of earthquake insurance.

The site can inform you about the insurance risks in your specific area, whether it be Central, Eastern, or the Western United States. The data from a Federal Emergency Management Agency (FEMA) study provides some excellent insight to help you asses your risk. 

The Pros of Earthquake Coverage

It's pretty simple to understand that the main "pro" of buying earthquake insurance is because it will protect the investment you have in your home if you sustain damages due to an earthquake. Homeowner policies do not provide coverage for direct damage caused by an earthquake. 

Pros of Earthquake Insurance

  • If your home is damaged by an earthquake, you will be covered for repairs or reconstruction rather than losing everything, or having to borrow (more) money to make your home livable.
  • In lower-risk areas, the cost of earthquake insurance is lower, so you won't be paying the kinds of premiums people pay in high-risk areas. It is worth getting a quote and deciding if you're willing to pay to make sure you are as protected as possible. If you find out earthquake insurance is only $20 a month, maybe it's worth paying for just for the peace of mind.
  • If your home is uninhabitable due to an earthquake, you may get additional living expenses to live somewhere else while the insurance company rebuilds your home. This way, if you are still paying your mortgage for your destroyed home, at least someone else is paying for a place for you to live. Imagine having to pay your mortgage for a house that no longer exists and will not be rebuilt, and your accommodations while you get yourself back in shape. Insurance is always good to have when a major disaster strikes.

    Current Trends that Make Buying Earthquake Insurance Important

    There are various kinds of earthquakes or movement of the ground. You don't have to be living near or on a fault line anymore to suffer damage and feel the ground shake.

    In 2011, a 5.7 magnitude earthquake hit Oklahoma. According to the Insurance Institute and later publications, researchers at the University of Oklahoma, Columbia University and the U.S. Geological Survey believe that this quake, as well as many others in the middle of the U.S., may be the result of human activity like fracking, which is awakening fault lines that have been dormant for millions of years. If nothing else, our very own human activity may be placing us at greater risk of earthquake damage than we realize.

     

    People living in society haven't experienced this kind of human activity before that actually awakens the earth's fault lines. If you live in regions where there is fracking, mining or related activities, you may want to at least get a quote for earthquake insurance and then decide if it is worth putting a few extra dollars in your budget for the peace of mind.

    What Kinds of Damage Do Earthquakes Cause?

    Aside from the obvious potential of total destruction to your home, lets consider what kinds of damage that may happen due to an earthquake on a more frequent basis, these are just examples and certainly do not portray all possible risks from earthquake activity, but may give you an idea of what you might want to protect yourself from by buying an earthquake insurance endorsement or policy.

    • Partial to total destruction of buildings
    • Building Collapse
    • Structural damage to buildings that create dangerous circumstances and require repair
    • Structural damage to additional structures on your property, including items like swimming pools
    • Damage to other property and landscaping
    • Explosions
    • Fires
    • Gas Leaks
    • Landslides
    • Avalanches
    • Flash floods
    • Tsunamis

    Cons of Buying Earthquake Insurance

    After going over some of the risks that homeowners and anyone who has personal property may be exposed to without earthquake insurance, the following are some cons of earthquake insurance. 

    • In some states, mainly those with the highest risks, earthquake insurance can be very expensive. You have to decide if it's more likely that you will suffer from paying the high price of earthquake insurance vs. taking the risk that an earthquake will not destroy your home.
    • Even when you have earthquake insurance, you will have a very high deductible to pay, relative to the deductible on your regular home insurance policy, The deductible for earthquake insurance is often a percentage of the coverage on the building amount.

       The Outlook for Earthquake Insurance Costs

      Insurance is based on the ability of the insurer to pay out losses and the ability for the insurer to collect enough premium over time to cover the losses that occur. With very low percentages of people purchasing earthquake insurance, the cost is higher because the expenses after a disaster are being spread out over fewer policyholders.

      If more people purchased earthquake insurance, then the cost of the insurance may drop, simply based on the principle of insurance especially if there are long periods of time between disasters, which to date has seemed to be the case. 

      Weighing the Pros and Cons of Earthquake Insurance

      After reviewing the facts, only you can come to a decision as to whether or not it is worth paying for earthquake insurance. One thing for sure is that it is very difficult to predict when an earthquake will occur, and although regions may have long periods of low activity, it only takes one major event to create damage or destruction on your property.