Earthquakes are very common in many parts of the United States, especially along the West Coast. Here in the Pacific Northwest, we are vulnerable to potential major earthquakes as we are right next to an area known as the Cascadia subduction zone, where the Juan de Fuca Plate is actively sliding below the North American Plate.
If you reside in an area that has a higher earthquake risk, you may want to consider earthquake coverage to protect your home.
Unlike homeowners insurance, earthquake insurance is not required by mortgage lenders. For this reason, many homeowners may forgo earthquake insurance because of the additional premium.
Our goal in this article is to help you better understand earthquake insurance, so you can make an informed decision based on your financial budgeting and insurance needs.
What are covered in earthquake insurance?
Similar to homeowners insurance, earthquake insurance provides financial protection for all of the major elements of your home and property with these coverages:
- Dwelling coverage - Includes reconstruction of your home and all other structures attached to the house, i.e. attached garage, backyard deck, front porch, roof, etc.
- Other structures coverage - Includes reconstruction of any detached structures that are not directly attached to the house, i.e. storage shed, fence, detached garage, greenhouse, etc.
- Personal property coverage - Provides protection for all of your belongings such as your furniture, electronics, clothing, shoes, etc. Keep in mind that most insurance companies place a limit on valuables such as jewelry, watches, fine arts, and other collectibles.
- Loss of use coverage - Will help pay for additional expenses such as temporary housing, food, moving cost, etc., in the event that your home is under repair or reconstruction.
Most earthquake insurance companies allow you to choose your dwelling protection limit from a coverage range determined from your home replacement cost estimate. These companies may also allow you to choose a specified limit to other structures or personal property coverage.
When you are able to choose coverages specific to your needs, you can better budget for the premium needed to pay for the earthquake policy.
Other features included in your earthquake insurance
In addition to the main coverages listed above, earthquake insurance policies also include the following features:
- Debris removal - Covers the cost of clearing and removing debris from your property after an earthquake. However, this may not cover the cost to extract pollutants from the soil or water around your property.
- Engineering and demolition cost - Covers the cost to engineer and rebuild the home, as well as the cost to demolish structures that are unfit or unsafe on your property for rebuild.
- Building code upgrade - Covers the cost of following local city regulations for repair or rebuilding of your home. The coverage limit is specified on your policy (e.g. $10,000) and it is most applicable to older homes in areas like electrical and plumbing.
- Loss assessment - Covers the cost assessed to you as a home or condo owner to rebuild or repair any common or shared areas within the home or condo association.
How does earthquake insurance coverage work?
The primary cost of your earthquake insurance will be determined by these major factors:
- Type of home - Do you own a single family home or a duplex? Most residential earthquake insurance policies provide coverage for homes up to a fourplex.
- Foundation of home - Does your home have a basement or crawlspace? Your earthquake insurance premium will vary depending on the type of foundation.
- Age of home - Depending on the age of your home, local building codes may have updated significantly since the home was built, such as how the foundation is secured.
- Framing construction of home - Homes that are built with 100% wood or metal framing can easily secure an earthquake insurance policy. However, if your home has some percentage of brick or stone veneer, you may need to answer additional questions when obtaining a quote.
- Cost to rebuild the home, also known as replacement cost - The amount of your premium will correlate with the cost to rebuild your home: the higher the cost, the higher the premium.
- Earthquake territory rating - Here in the Greater Seattle area, we are located in the middle of a high risk earthquake zone, and our cost to obtain earthquake insurance will reflect that risk.
Factors that may prevent you from qualifying for an earthquake policy
- Your home has more than 30% of masonry framing, including concrete and brick.
- You have had more than one earthquake insurance claim within the last 3 years.
- You own a mobile, modular, prefabricated, or log home.
- Your home has more than 4 family units.
How is payout determined?
Like most insurance contracts, earthquake insurance companies require you to notify them at your earliest opportunity after a loss occurs. You are also required to take the necessary steps to prevent or mitigate further damages if possible.
Keep in mind, most earthquake insurance policies allow coverage caused by aftershocks up to 72 hour from the initial major earthquake event.
The amount of payout for the earthquake insurance is dependent on your selection of coverages listed in the earlier part of this article.
How much is the deductible?
A deductible is the amount you have to pay at the time of a claim before your coverage will apply. It is important to address the deductible options offered on earthquake insurance policies because unlike traditional insurance policies, earthquake policies only carry deductibles at a percentage of the selected coverage rather than a fixed amount.
According to the 2017 report by Washington State Insurance Commissioner, the most common percentage deductible for earthquake insurance for Washington State homeowners is between 10% and 15%.
This means that if your earthquake coverage is at $500,000, your deductible is $50,000 (10%) or $75,000 (15%).
Most earthquake insurance companies offer deductible options of 10%, 15%, 20%, and 25%. As with all insurance policies, the higher the deductible you choose, the lower the premium will be, and vice-versa.
Do I need earthquake insurance?
According to the 2017 report by Washington State Insurance Commissioner:
- 13.8% of homes West of the Cascades carry earthquake insurance.
- 15.71% of residential homes in King County have earthquake insurance.
- Homes with earthquake insurance are 65% more expensive than the average home price.
For many homeowners in the Greater Seattle area, their home is the most important and valuable asset. Many of these homes also have a lot of home equity as a result of years of positive real estate market trends. It is very important to consider your property asset and the potential financial risk an earthquake may cause.
Adding earthquake insurance to your homeowners policy
Earthquake insurance endorsement
Some homeowners insurance companies offer earthquake coverage as an endorsement, and homeowners can elect to add this endorsement on to their policy for an additional premium.
If your home is older than a specified age requirement, you may need to meet additional requirements before you are able to add the endorsement even if your home is already insured under existing homeowners policy. These requirements may include retrofitting your home such as bolting down the frame of your house into the foundation and securing other structural elements within your home.
Separate earthquake insurance policy
In most cases, homeowners purchase separate earthquake insurance policies from a specialized earthquake insurance company.
Companies like Geovera Specialty Insurance Company and Palomar Specialty Insurance Company are among a few that offer individual residential earthquake policies. Depending on your state of residence, availability may vary, so be sure to check with your insurance agent to see which insurance companies offer earthquake coverage in your area.
Additional facts about earthquake insurance
At a closer look, you will find most earthquake insurance policies contain a number of exclusions, some common ones to be aware of are:
- Volcanic eruptions
- Fires, which is typically considered as part of homeowners insurance coverage.
- Tsunamis, which is considered part of flood insurance coverage even if it's a direct result of an earthquake.
Suspension of new coverage
If an earthquake has occurred in a local area, earthquake insurance carriers are likely to temporarily suspend adding new earthquake insurance policies in that area. Just like any insurance policy, you will not be able to obtain earthquake coverage after a loss has occurred.