Earthquake insurance

nicolen08 · February 2014

What do you guys think about earthquake insurance, is it worth it?

I live in so cal, where the "big one" is supposed to hit sometime soon. Most people here do not carry earthquake insurance because of the following:

1. expensive premiums (we'd pay around 1,000 a year);
2. it has a high deductible (10-15 percent of your homes total value as determined by your home insurance policy);
3. most earthquakes here are very minor and many people, like myself, have never been through a catastrophic earthquake, and scientists have been talking about the big one for decades, but nothing happens;
4. people worry that even if they get insurance, the companies will go bankrupt in the event of a huge earthquake.

I bought my home new, so it is up-to-date on the latest building codes, and I strapped down big furniture. Furthermore, I believe that even though the deductible is high, you don't actually have to pay that amount before the insurance pays out. The deductible just triggers when you will get paid. However, without it, it may be hard to rebuild. Also, I think it's actually pretty hard to destroy a home in an earthquake (or meet the high deductible) so long as you don't live on sandy ground; however, if the "big one" ends up being like a 9.0 or something similar then all bets are off. Lastly, if I got insurance, I'd go with a company that is backed by the federal government, and not by the state earthquake fund, which I think could go bankrupt.

I'm torn on the issue. We have a lot of equity in our home, so losing that would hurt, but we do have emergency savings, and we could probably get into a new home if we lost this one, but without 20 percent down. I think most people, myself included, believe the big one will come in our lifetime, but it's basically an out of sight, out of mind thing, and paying for the insurance is painful.

Thanks for your thoughts! :-)

brij2006 · February 2014

Here's the questions I would ask myself. Do you have a mortgage? If yes, then can you pay it off if an earthquake were to destroy it? If the answer is yes, then you're self insured and I wouldn't get it. If the answer is no, then I would get enough insurance to pay off your mortgage. The premium should be cheaper since you wouldn't be insuring it at the full replacement cost, but you would have enough to no longer have a mortgage on a home you can no longer live in.

RoMy215 · February 2014

We are also in SoCal and debated about purchasing earthquake insurance. I don't think our premiums are THAT expensive, but the deductible IS. You're right that it's kind of risky--if it's a big quake that doesn't destroy your house, you can still file a claim under your regular home owners policy. But if it does do damage to the structure without the earthquake insurance, you're up a creek.

You said that you could probably put a down payment on a new house- but if your house isn't paid off, can you just walk away (if it's destroyed)? I honestly don't know and am curious.

I hadn't thought of the idea of just getting a new house; but we have it because while it would be difficult to come up with 10% of the value of our house- it would be easier than trying to start from scratch. And...we're in the valley.

nicolen08 · February 2014

@romy215, I thought homeowners insurance would not cover any earthquake damage?

As to getting a new house, CA is a non-recourse state, so as long as you have a non-recourse loan, then you could just walk away and buy a new home (you'd prob have to wait a while before you would qualify for another mortgage), and the lender could not get your personal assets. Of course, losing all your equity would be awful, and your credit score would go into the toilet. But, it is an option. When you refinance, though, many loans become recourse ones.

I also read that you don't have to come up with the high deductible, like you would for auto insurance. The deductible just triggers when you are entitled to the insurance pay out, but you wouldn't need to bring $30,000 (for, say, a $300,000 home) to the table. But if your house had 50,000 in damage, and you didn't have 30,000, the insurance would give you 20,000, but you wouldn't have enough to fix your home! Add to that the fact that building prices will go up a lot in such an emergency, and it would really be a bad situation. So it's good you don't need to have the deductible before you get paid, but also bad because you do need that money. And, with CA home prices so high, most peoples deductibles are crazy high; 30k would be a low one! I believe that's how the deductible works anyway, I plan on double checking with an agent if I do buy it.

Basically, unless the big one is right under your house or super, crazy massive, I don't think the insurance will end up paying anything because the deductible won't be exceeded. So, you'll have paid all those years of premiums, get nothing for them, and still have to come up with 5 or 10k to fix the damage that your house did sustain. Ugh.

hereonceagain · February 2014

We decided against it. I'd rather save that $$ in an account each month and invest it. Hopefully we would have a decent sum when the big one hits. And maybe its wishful thinking, but government programs will kick in during a major disaster. I have as much trust in them as I do insurance companies.

RoMy215 · February 2014

Oh you're right!! I double checked and any damage from an earthquake is not covered under your regular policy. Clearly I need to go back and do more research.

cloudymeatballs12 · February 2014

We live in So Cal a well, and didn't bother to get earthquake insurance..

Earthquake insurance

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