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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.
In this article, we will go over:
Similar to homeowners insurance, earthquake insurance provides financial protection for all of the major elements of your home and property with these coverages:
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.
In addition to the main coverages listed above, earthquake insurance policies also include the following features:
The primary cost of your earthquake insurance will be determined by these major factors:
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.
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.
According to the 2017 report by Washington State Insurance Commissioner:
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.
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.
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.
At a closer look, you will find most earthquake insurance policies contain a number of exclusions, some common ones to be aware of are:
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.
Every insurance company has its own guidelines for policies. We always recommend talking to your insurance agent to discuss your personal policies in detail. Working with an insurance agent is the best way to make sure you are properly covered.