Is Earthquake Insurance Worth It?

cracked asphalt after earthquake

Earthquakes can strike without warning, and leave homeowners saddled with expensive repair bills in their wake. Damage from earthquakes is not covered by normal insurance policies, and if you live in a high risk area, getting earthquake insurance might be a prudent choice.

Read on to see how this specialized insurance works and to find out if it's right for you.

How Does Earthquake Insurance Work?

Homeowners insurance typically does not cover damage caused by certain natural disasters, but an earthquake policy could provide some financial protection if your home and property are damaged by an earthquake.

Like other insurance policies, earthquake insurance plans have deductibles and annual premiums. Depending on the policy, providers may have varying coverage limits based on different types of potential losses. When evaluating your plan, be sure to understand the full extent of how your coverage for each category of potential loss.

The following are common coverage types offered by insurers:

  • Dwelling: This covers damage to your home and any attached structures, such as a garage. Coverage limits for your dwelling may be capped, or could be equivalent to your homeowners insurance policy.
  • Personal property: This covers damage to personal property—furniture, televisions and other items of value in your home, for example. This coverage may be optional, and coverage limits could be based on what you own.
  • Code upgrades: This covers any repairs that are required to bring your house up to code following damage from a quake.
  • Loss of use: This covers the cost of living expenses if you've been forced to move from your home during repairs.

Deductibles for each of these categories of coverage may be seperate, and insurance providers may charge different deductible amounts for different types of claims. When shopping for an insurance plan, make sure to clarify all your coverage limits and confirm whether you'll have one or multiple deductibles.

Do You Need Earthquake Insurance?

Whether earthquake insurance makes sense for you will depend on a few factors, including the location of your home and your tolerance for risk. Earthquakes can happen anywhere, but certain areas are much more susceptible to large quakes than others. Earthquake insurance also comes at a price, so you'll have to weigh your risk with your willingness to pay for an extra insurance policy.

In the U.S., the states along the West Coast are more susceptible to earthquakes due to their proximity to Pacific seismic belt, commonly known as the Ring of Fire. This zone also stretches along the coasts of Asia, Central America and South America and is home to 81% of the planet's largest earthquakes, according to the U.S. Geological Survey.

If you live in this hot zone, which includes the states of California, Oregon, Washington and Alaska, you may find that earthquake insurance is worth it. California is the location of more earthquakes that cause damage than any other state, which makes the likelihood of property damage from an earthquake a much greater reality for people living there.

When considering if earthquake insurance is right for you, also take into account the value of your home and the costs involved should you file a claim. These specialized policies can often come with expensive deductibles—upwards of 25% of the coverage limit—and depending on the value of your home and geographic risk level, buying earthquake insurance might be more costly than covering repair costs on your own.

How Is the Price of Earthquake Insurance Determined?

Like other types of insurance, there are two main costs to consider when evaluating an earthquake insurance policy: your deductible and your annual premium. Your deductible is the amount you will pay out-of-pocket when you file a claim, and your premium is the amount you'll pay each year to carry the policy.

The price of earthquake insurance is based on several factors, including:

  • Where your home is located: The location of the insured property is one of the most important factors determining the price for your policy. If you live in an area where the likelihood of a quake is high, your premium will reflect this heightened risk. Homes in California will have more expensive insurance policies than homes in New York, where damaging earthquakes are rare.
  • Your home's age: An older home generally costs more to insure because it may lack a lot of modern innovations in building standards that help prevent damage from earthquakes. Even if a building has been renovated to look new, it might not have been retrofitted with things like foundation anchor bolts and wall reinforcements.
  • How your home was built: The construction of your home can impact your policy price, as some homes are built from materials that fare better in earthquakes. Homes with wooden frames will be cheaper to insure than brick homes as wooden structures can withstand the shock of a quake better than a home built of bricks.

Each of these factors will be weighed when determining the cost of your insurance premium. Additionally, earthquake deductibles can vary—for example, the publicly managed California Earthquake Authority (CEA) offers deductible options between 5% and 25%. The size of your deductible will impact the cost of your policy, and it's important to take all these factors into account when evaluating plans.

Where to Get Earthquake Insurance?

One of the best places to look for earthquake insurance is with your current homeowners insurance provider. Some major insurance companies—like Farmers Insurance—provide add-on earthquake policies, allowing you to keep all your home insurance plans under one roof. If you live in California, homeowners insurance companies are required by law to provide an earthquake insurance option.

Since the risk of earthquakes in California is so high, the state legislature created the CEA to provide a resource for California homeowners. The CEA is the largest provider of earthquake insurance in the U.S. and is a reliable resource for Californians looking to purchase additional earthquake insurance.

Homeowners in other states should conduct research providers to find insurers that offer earthquake policies. If multiple companies have options, make sure to compare prices—including deductibles, premiums and coverage details—when deciding on which plan is the best for you.