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Millions of Americans in states throughout the country are at risk of earthquake damage, according to the Insurance Information Institute, yet many choose not to purchase insurance coverage to protect their assets. There's no way to know when an earthquake will strike, and a hard hit can cost you thousands if you're not insured. Earthquake coverage can protect homeowners by covering structural damage, the loss of personal belongings and the cost to relocate if disaster strikes.
Keep reading to learn how earthquake insurance works, whether it's a good fit for you and how to save on your premiums.
How Does Earthquake Insurance Work?
Most homeowners insurance policies do not cover damages caused by earthquakes. If you live in an area prone to these natural disasters, you can give yourself some peace of mind by purchasing additional earthquake insurance.
These plans work like most insurance policies. You pay annual premiums to keep the policy active. And if you have to file a claim, you will have to first pay the deductible before the policy kicks in to cover the damages.
Like other types of insurance, your earthquake insurance policy could also come with certain limits, including coverage payout limits and restrictions on what is covered. The limits on your coverage, the amount of your deductible and the cost of the insurance premium are all important factors to consider when deciding if the additional coverage would make financial sense.
What Is and Isn't Covered With Earthquake Insurance
When shopping for an earthquake insurance policy, make sure you understand what the coverage includes. Knowing the ins and outs of an insurance policy before you agree to the coverage is important, as a blind spot in your policy can leave you without recourse.
Earthquake insurance policies include the following types of coverage:
- Dwelling: This covers repairs to your home and attached structures to fix damage caused by the earthquake
- Personal property: Personal belongings and valuables in your home can be protected by earthquake insurance. This type of coverage may be offered as an optional policy, and subject to its own limits.
- Loss of use: Living expenses can easily mount if your home is uninhabitable following a quake and you have to relocate while repairs are made. Loss of use coverage kicks in to cover things like hotel stays and related costs.
- Renovations or code upgrades: Coverage of this type helps pay for repairs or modifications following an earthquake needed to bring your home up to current local building codes.
Earthquake insurance typically does not cover the following:
- Fire and water damage resulting from gas or water pipes that rupture in an earthquake. This may be covered under your homeowners policy, however.
- Vehicle damage. While not covered by earthquake insurance, this may be covered by your comprehensive auto insurance if you carry it.
Before you select a plan, ask the provider to verify policy details to ensure you get the coverages you need. Also, inquire about deductible amounts as they may vary by the type of claim you file.
Who Needs Earthquake Insurance?
There are a few factors to consider when determining whether or not earthquake insurance is worth it for you. Some questions to ask yourself:
Is your home in an area that's vulnerable to earthquakes? Homes in California, Alaska, Oregon and Washington are at a greater risk for earthquakes than other states. Purchasing a policy could save you thousands out of pocket in the end. This is especially the case in California, which is the location of more home-damaging earthquakes than any other state. You can learn more about the earthquake hazard in your area on the United State Geological Survey's website.
Are you financially prepared to cover damages if an earthquake hits and you don't have adequate coverage? If you have a hefty emergency fund at the ready and are financially prepared for disaster, you may choose not to pay a monthly premium for earthquake insurance—especially if you're in a low-risk area. If a quake does hit, however, you'll have no choice but to pay out of pocket to cover repairs, replace personal belongings and pay for temporary housing.
Do the potential benefits of an earthquake policy outweigh the costs? Again, there's no surefire way to know if a property-damaging earthquake will hit. But if you believe the plan premiums are a small price to pay for cost savings you could incur if repairs are needed, it may be best to purchase earthquake insurance.
How Much Does Earthquake Insurance Cost?
In most states, you will pay between $100 and $300 annually for coverage. That's unless you live in Alaska, California, Oregon or Washington, where annual premiums can jump to $800 or higher.
Ultimately, the amount you will pay is determined by these factors:
- Location of your home: Is your home located in a high-risk area? If you live along the West Coast or are close to a fault line, you will likely pay more for coverage as the area is susceptible to earthquakes.
- Age of your home: Premiums for older homes could cost you more. They tend to lack the improvements and building standards that help to minimize earthquake damage. Recently renovated homes may qualify for lower premiums, as long as renovation included earthquake retrofits and not just superficial upgrades.
- Construction of your home: Is your home a wood structure or brick building? You can expect to pay more if it's the latter since wood homes tend to be able to withstand shocks from earthquakes much better than those constructed from brick.
Keep in mind that policies with lower deductibles carry steeper premiums. Deductibles can range from 2% to 20% of your home's replacement value.
How to Save on Earthquake Insurance
If you decide earthquake insurance is right for you, use these strategies to save money on your policy:
- Improve your credit. Insurance providers in many states can use credit-based insurance scores to assess risk and the likelihood that you'll file a claim. Lower credit scores could mean higher premiums. You can improve your credit by making all your debt payments on time, reducing your credit card balances and only applying for credit as needed.
- Shop around. Don't settle for coverage from the first provider you find. Get quotes from multiple companies and go with the most reputable option that fits your needs and budget. If you live in California, coverage is available through the nonprofit California Earthquake Authority (CEA).
- Raise your deductible. A higher deductible means a lower premium since you will assume more risk. But only make this move if you could afford to pay the higher deductible if an event were to occur.
The Bottom Line
Earthquake insurance may be a smart investment if you live in a high-risk area. Before choosing a policy, first make sure you understand how these policies work and evaluate your options until you find the best fit. You may also qualify for lower premiums if you raise your deductible or boost your credit score. Get your free credit score and report from Experian to assess your credit and identify areas you can work on to improve your credit health.