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

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

Depending on what State you live in, you may or may not be concerned about earthquake insurance, but according to the Insurance Information Institute, millions of people in over 40 states are at risk of earthquake damage to their homes or personal property. Earthquake damage is not insured under a standard home insurance policy. Here's some information to help you decide if you should purchase earthquake insurance for your home, condo, or personal belongings.

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 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. 

If you have a mortgage to pay off, this could really cost you a lot of money because your mortgage company will likely still want to be paid even if your home is destroyed 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.

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.

If you have earthquake damage and do not have earthquake insurance to help you pay the costs, your financial obligations like your mortgage will not just disappear. You may have to continue to pay your mortgage and also pay for a new place to live out of your own pocket, even if your home is damaged or destroyed.

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 always worth getting a quote so you can make an informed decision. If you find out earthquake insurance is only $20 a month, maybe it's worth paying for just for the peace of mind. You may also consider offsetting the cost by taking a higher deductible to save money on your insurance costs.
  • 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, plus 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.

     

    If you live in regions where there is fracking, mining or related activities, your region may be at greater risk of earthquake activity than in the past. Speak to your insurance representative to see what is available and get a quote for earthquake insurance. This will help you decide if it is worth putting a few extra dollars in your budget for the peace of mind to be protected.

    What Kinds of Damage Do Earthquakes Cause?

    Aside from the obvious potential of total destruction to your home, here are some other kinds of damage that may happen due to an earthquake. These are just examples of some types of earthquake damage and risks, and do not portray all possible threats from earthquake activity. This list can 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) are exposed to if they don't have earthquake insurance, there are not a lot of cons with earthquake insurance, aside from those related to price and cost, such as: 

    • In some states, mainly those with the highest risks, earthquake insurance can be costly. 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 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, like five or 10 percent of the building insured value.

      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 claims that occur. With very low percentages of people purchasing earthquake insurance, the cost is higher because there isn't sufficient premium being collected from the masses to cover the risk.

      If more people purchased earthquake insurance, then the cost of the insurance may drop, especially if there are long periods between disasters, which to date has been the case. 

      Weighing the Pros and Cons of Earthquake Insurance

      After reviewing the facts, only you can decide whether or not it is worth paying for earthquake insurance. It is tough 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.