Is earthquake insurance worth the cost?

In a nutshell

Earthquake insurance is a separate property insurance policy or sometimes a rider to a homeowners policy designed to cover damage to your home or possessions due to earthquakes.

• Because earthquakes aren’t covered under standard homeowners insurance policies, you could bear the cost of repairing or replacing your home if an earthquake is considered the cause of damage.
• If you’re concerned about this potential cost, earthquake insurance might be worth it for you.

What does earthquake insurance cover?

When you buy an earthquake insurance policy, it’s supposed to cover your home’s structure and your personal belongings. If those items are damaged and need to be repaired or replaced, the earthquake insurance policy should pay out to cover those costs. Earthquake insurance can also provide you with money for living expenses if you can’t stay in your home after an earthquake.

It’s important to note that most standard homeowners and renters insurance policies don’t include earthquake coverage. If damage to your home or belongings is caused by an earthquake, the insurance company might deny your claim. Having earthquake insurance can protect you if you’re concerned you could end up losing your home to an earthquake.

How much does earthquake insurance cost?

The cost of earthquake insurance depends on different factors:

• Where you live. (Earthquake insurance in some states — such as California — costs more.)
• The age of your home.
• Whether the home is on a slab or raised foundation.
• Whether the home’s structure is frame- or masonry-based.

You can also lower the cost of your earthquake insurance by choosing a higher deductible. The more you’re willing to pay out of pocket before the insurance kicks, in the lower your premium is likely to be.

One rule of thumb is to assume that you’ll pay between $500 and $2,000 a year for every $100,000 of coverage you get. So, if you think it will cost $300,000 to replace your home if it’s destroyed in an earthquake, you might budget $1,500 to $6,000 a year to cover the cost of earthquake insurance.

Choosing your earthquake insurance deductible

Because your deductible influences the overall cost of your coverage, you’ll need to think about how much you can afford to pay out-of-pocket if an earthquake strikes your home. Unlike some other types of insurance, earthquake insurance deductibles aren’t expressed by dollar amounts. Instead, they’re based on a percentage of the coverage limit on your home and belongings.

For example, let’s say there is an earthquake, and your home sustains $200,000 in damage. You’ll pay one deductible for damage to your home and a different deductible for your possessions.

• In this hypothetical situation, your dwelling coverage limit is $300,000 and your deductible is 10%. That means you’ll pay $30,000 out of pocket before your earthquake insurance kicks in. The $200,000 in damage means you’ll pay $30,000 for repairs, and the insurer will cover the remaining $170,000.
• Your personal property coverage limit is $50,000, and your deductible is 2%. In this case, you’ll need to pay $1,000. So, if you lose $15,000 in belongings, you’ll pay $1,000 and the insurer will pay $14,000.

In this scenario, your total out-of-pocket cost is $31,000, while the insurer is responsible for $184,000.

When should you get earthquake insurance?

Earthquake insurance can be costly, especially if you live near an active fault line. You could find yourself spending thousands of dollars extra a year on top of your regular homeowners policy just to protect against earthquakes. Because of this cost, you might not feel it’s worth it to get earthquake insurance.

For many people, earthquake insurance isn’t necessary. Before you decide to move forward, the United States Geological Survey suggests you consider the following factors:

• How close you live to an active earthquake fault line.
• Whether the area has a history of frequent earthquakes and tremors.
• When the last earthquake took place.
• Whether the home was designed with earthquake resistance in mind.
• The type of soil in the area and whether it’s likely to move dramatically during an earthquake.
• Value of your home and your belongings.

If you live near an active fault line, and earthquakes happen with relative frequency, it might be worth it to get earthquake insurance. Additionally, if there was an earthquake that caused significant damage in an area within the past few decades, it might be worth considering.

Don’t forget to consider how your home is built, as well as the conditions of the land it’s built on. If you live in an area that’s prone to landslides, an earthquake could easily trigger additional problems.

Finally, think about whether you could replace your home and possessions without financial distress if an earthquake struck. If it will cost you a lot of money to replace a home and you live in an area where earthquakes are relatively common, the cost of insurance might be worth it.

Where can you get earthquake insurance?

Depending on the situation, you might be able to get earthquake insurance from the same provider as your homeowners insurance. You can usually buy earthquake insurance as a standalone policy or add an earthquake rider to your existing policy.

Shop around and consider the cost of each approach to earthquake insurance. Depending on the situation, it might be more cost-effective to add an earthquake rider to your regular homeowners policy than to try to get separate coverage.

Another possibility is to access earthquake insurance through the state. California has a state agency that sells earthquake insurance.

Frequently asked questions (FAQs)

What percentage of people have earthquake insurance?

About 23% of people who have homeowners insurance also have earthquake insurance, according to the Insurance Information Institute.

Is earthquake insurance tax deductible?

Generally, earthquake insurance like the homeowners insurance on your primary home isn’t tax-deductible. However, the IRS does have a provision to allow you to deduct losses related to natural disasters..

Does regular homeowners insurance cover earthquakes?

No, most regular standard homeowners insurance policies don’t cover damage and loss due to earthquakes.