Earthquake Insurance, Explained

Earthquake insurance covers damage to your home, personal belongings, and additional living expenses if you are forced to relocate due to an earthquake. Standard homeowners and renters insurance policies typically do not include earthquake coverage, but it can be added as an endorsement to an existing homeowners insurance policy or purchased as a separate policy.

Earthquakes occur when a movement in the earth's crust causes violent shaking of the ground. According to the US Geological Survey, approximately 200,000 earthquakes occur each year, with the majority of them occurring in 42 states. The majority of earthquakes are minor and cause little or no damage, but others can be disastrous.

Depending on where you live, this type of coverage may be a good idea.

Cost of earthquake insurance

The cost of earthquake insurance is determined by factors such as the value of your home and the risk of the area in which you live. In some high-risk areas, earthquake insurance may cost more than a homeowners insurance policy. Because of its location on multiple dangerous fault lines, California is one of the most expensive states for earthquake insurance.

  • In California, earthquake coverage costs an average of $1.75 per month for every $1,000 of coverage. So, if you want to buy earthquake insurance for a $250,000 home, it would cost around $438 per month. In some low-risk areas, earthquake insurance can be purchased for as little as 50 cents per $1,000 of coverage. A policyholder may pay $125 per month for the same $250,000 home.

Other factors affecting the cost of earthquake insurance

Aside from geography and home value, the following factors can influence the cost of earthquake insurance:

  • The age of your home: Because newer homes have better materials and can be built with earthquakes in mind, they typically cost less to insure than older homes.
  • The number of stories (including the basement): Because taller homes are more likely to collapse, they are usually more expensive to insure.
  • Framing materials: Because wood is more elastic than other materials, homes with wood frames cost less to insure.
  • Foundation materials: Raised foundations give a home elasticity, which is crucial during an earthquake. This could help you save money on your earthquake insurance. For the same reason, homes built on sandy soil rather than clay or rock will have lower premiums.

Homeowners can retrofit their homes to make them more secure and save money on insurance. For example, you can bolt your house to the foundation, brace the chimney and water heater, install automatic gas shut-off valves, and reinforce crippled walls with plywood. These techniques can help to stabilize your home, making it less likely to sustain serious damage during a quake.

Determining if earthquake insurance is worth it

When deciding whether or not to purchase earthquake insurance, consider the following:

  1. Check to see if your homeowners insurance covers earthquake damage.

Most homeowner policies do not cover earthquakes, but if they do, there is no need to purchase additional coverage.

  1. Check whether you live in a high-risk area for earthquakes.

There are 42 states that are at risk of earthquakes, with 16 being considered high risk. Keep in mind, however, that tremors can be felt miles away from the epicenter. Even if you don't live in a high-risk area, your home could be damaged by an earthquake.

If you live in a high-risk area with frequent and powerful earthquakes, you should get earthquake insurance.

States with highest risk for earthquakes

  • Alaska
  • California
  • Hawaii
  • Idaho
  • Kentucky
  • Missouri
  • Montana
  • Oregon
  • South Carolina
  • Tennessee
  • Washington
  • Wyoming
  1. Consider how you would rebuild your life after an earthquake.

Consider the following questions:

  • Can I afford to repair or rebuild my entire home if it is damaged or destroyed by an earthquake?
  • Can I afford to replace my home's personal belongings after an earthquake?
  • Can I pay for temporary housing if my house is deemed uninhabitable due to a hazard in the neighborhood or structural damage?

If you answered "no" to one or more of the questions above, you should think about getting earthquake insurance.

What does earthquake insurance cover?

Damage to your home (referred to as a "dwelling" in policies), personal property, and additional living expenses are the three main components of earthquake coverage (ALE).

  • Assume an earthquake damages your home's walls and destroys your television and living room furniture. In addition, due to the earthquake, you must evacuate and spend a week in a hotel. Your policy's dwelling portion would cover the cracks in your walls, the personal property portion would cover your TV and furniture, and the ALE portion would cover your hotel stay. Depending on your policy, you may be required to file a separate claim for each of these, as well as pay a separate deductible.

Certain items, such as your vehicles, fence, pool, and collectibles in your home, may be excluded from earthquake insurance. Damage to your property, such as landscaping, is also not usually covered. Some policies, however, include "engineering cost" options that would cover these items.

  • Let's say an earthquake damaged your in-ground pool and started a fire that burned down a portion of your house. You don't have an engineering cost option in this scenario. Your earthquake policy would not cover pool damage, but your homeowners insurance policy would cover fire damage to your home.

External water damage is another significant exclusion in earthquake insurance. Flooding and tsunamis are common aftershocks, but their damage is not covered by earthquake insurance. A flood insurance policy would cover both of these events, as well as damage caused by an earthquake-caused sewer or drain backup.

How earthquake insurance and claims work

The cost of earthquake insurance differs depending on the policy and the policyholder. Earthquake insurance typically covers your home up to the same limit as your homeowners insurance, with policyholders paying a deductible of 10% - 20% of that limit.

Assume that an earthquake completely destroys your home. Your insurance company would pay you up to the limit of your coverage, less the deductible.

  • Earthquake insurance policy: $150,000 coverage limit; 15% deductible
  • Claim submitted: $150,000
  • Homeowners responsibility: 15% of the $150,000 claim = $22,500

In this case, your insurer pays you $127,500 for damage to your home: $150,000 coverage limit minus $22,500 equals $127,500.

Call your insurance company and report visible damage to file an earthquake insurance claim. It can be difficult to assess, so getting a home inspection may be worthwhile — especially if your home is older.