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Quake insurance: Are you covered?

Scientists say there's a big chance a significant earthquake could hit the U.S., particularly California, in the coming decades.

By MSN Money Partner Mar 11, 2011 3:35PM

This post comes from partner site Insure.com.

 

Insure.com on MSN MoneyThe 8.9 earthquake that struck off Japan’s eastern coast Friday -- the fifth largest on record -- is a grim reminder to those who live on the U.S. West Coast, particularly California, that it could happen there next.

The probability that one or more 6.7 magnitude or greater earthquakes will strike the Golden State in the next 30 years is 99%, according to an April 2008 study released by experts from the U.S. Geological Survey, USC's Southern California Earthquake Center and the California Geological Survey. The chance of a 6.7 magnitude quake hitting the San Francisco Bay area is 63%, and the probability that an earthquake of that size or greater will strike the Los Angeles area is 67% by 2028. Post continues after video.

For comparison, a magnitude 6.7 earthquake is equivalent to the 1994 Northridge, Calif., earthquake that resulted in 57 deaths and more than $40 billion in property damage, according to FEMA.

 

Home insurance, condo and renters insurance policies generally do not cover damage caused by an earthquake, but coverage can be purchased as an endorsement or a separate earthquake policy. The cost of earthquake insurance varies from state to state. Contact your home insurance agent to find out what the costs would be for your home.

Not surprisingly, Californians buy the most earthquake insurance, but earthquake insurance has been sold to residents of all 50 states.

 

According to the U.S. Geological Survey, the San Andreas fault has the highest probability of a large quake occurring in the next 30 years, at a likelihood of 59%.

 

However, the New Madrid seismic zone, which stretches from just west of Memphis into southern Illinois, also has insurers worried. For those who don't remember -- which would include anyone not alive in 1811 -- an earthquake struck the New Madrid area with enough force to change the course of the Mississippi River and ring church bells on the East Coast.

 

Scientists from the USGS estimate that the chance of a magnitude 6.0 earthquake or higher occurring in the New Madrid seismic zone is 25% to 40% in the next 50 years, and an earthquake with an 8.0 magnitude -- which would cause catastrophic damage -- could hit areas affected by the New Madrid seismic zone in the next 50 years.


Earthquake insurance coverage and costs
Ideally, your earthquake insurance policy should cover the cost to replace or repair your damaged property. To select the right plan options for you, consider the following:

  • Does the policy cover only your dwelling? Are accessory structures, such as garages, also included?
  • Will your policy pay for the contents of your home and for additional living expenses if your home is destroyed or too badly damaged for you to live there before repairs are made?
  • Are there any exclusions or limitations to coverage?
  • What deductible must you pay before the insurance kicks in?

Earthquake insurance rates are determined differently by each insurance company and can vary widely depending on several factors. Generally, older homes cost more to insure.

 

Wood homes get better rates than brick buildings because wood tends to withstand quake stresses better. The Insurance Information Institute notes that premiums are also based on the nature of the soil and your house's proximity to recognized fault lines.

 

In addition, areas are graded on a scale of 1 to 5 for likelihood of quakes, and this is reflected in earthquake insurance rates. Because earthquake insurance is a type of catastrophic coverage, most policies carry a high deductible -- anywhere from 2% to 20% of the replacement cost of the structure. For instance, if the cost to rebuild your house after a quake is $100,000 and your policy has a 2% deductible, you would be responsible for the first $2,000.

Residents of California can buy insurance from the California Earthquake Authority through participating insurance companies. The CEA is a state-sponsored private-public partnership providing earthquake insurance to California homeowners, renters and condominium owners. The 17 insurance companies that participate in the CEA offer a standard earthquake insurance policy with a 10% or 15% deductible. Currently, only 12% of Californians who carry fire insurance also buy earthquake insurance.

 

How much earthquake insurance coverage should you buy?
If you decide to purchase earthquake insurance, buy enough to cover the costs of rebuilding your house and replacing damaged possessions. The amount of insurance you buy should be based on replacement and reconstruction costs, not the market value of your property and possessions.

 

You should also find out the policy's rules for filing claims before you sign any earthquake insurance policy. For example, it's important to know how much time you have to file a claim following a quake. In some cases, damage from earthquakes is not immediately apparent.

 

Read more from Insure.com and MSN Money:

10Comments
Mar 14, 2011 12:53PM
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Would earthquake insurance do much good here?  Most of the damage came from the tsunami.  Wouldn't that be flood insurance?
Mar 11, 2011 4:52PM
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Why is it that some is all trying to make a profit of other misfortune? It discuss me...
Mar 14, 2011 4:15PM
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very very very distastefull for the insurance agency to post this at an extremely sensitive time such as this.  

 

ambulance chasers!

Mar 14, 2011 3:39PM
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Here in Los Angeles Earthquake insurance is not cheap, and the deductible normally starts at  $30,000.00. It only starts to pays for none structural damage(ie TV, furniture, etc) after 15000 in damage, and only gives 15000 to replace..Better to just get a low interest FIMA loan, and replace everything...By the way after the Northridge earthquake a huge insurance company declared bankruptcy, changed its name, and screwed the people who had bought earthquake insurance from them, and now needed it....(maybe they moved from the 20th to 21st century..maybe someone else)
Mar 14, 2011 2:30PM
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It is so inexpensive that we did purchase it. Most unlikely to have one here in Georgia, but a few years ago we actually had a couple of minutes of china singing and light fixtures moving. This at 3:00am. I couldn't believe my eyes.
Mar 14, 2011 4:14PM
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wait untill the insurance companys buy there way into having a law for earthquake insurance i can feel the pain now OOOWWW
Mar 14, 2011 2:16PM
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Better just hope that the insurance company doesn't try to declare it an "act of god." You just have to love that guaranteed profit clause. Good point about the tsunami, number 1 reiner. If there's any way an insurer can get out of paying, you can guarantee they'll do it. What a sneaky way to funnel your hard earned money straight into the pockets of CEOs and investors.

Apr 19, 2013 2:47PM
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Quake insurance: Are you covered?- MSN Money : Try this site where you can comapre quotes from different companies:  usainsurancequotes.net
Mar 14, 2011 12:33PM
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Yikes....folks in CA should realize ....it is not a very sustainable area for large populations.  But humans are very short sighted.

 

Ron Battle...what disgusts you ?  Insurance is something you can avoid for the most part and take your chances. Profit, well....careful what you ask for, corp profit is what pays the countries taxes...social programs don't exist without them

 

 

Mar 14, 2011 2:07PM
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You got to be kidding me!!! Quake Insurance.... LOL

MSN, please...this is a joke.

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