Earthquake Insurance: Are You Ready for the Big One?

Your homeowners policy provides coverage against a litany of dangers, from wind to vandalism, to riots and back again--but did you know that standard policies have exclusions for earthquake-related damage? This might not mean much to homeowners in the geologically stable areas, but these exclusions present a cause for concern among those living along the earthquake-prone west coast.

Why doesn’t my homeowners policy cover earthquakes?

In short, because earthquakes present a potentially devastating kind of risk to insurance companies. Most perils commonly covered by homeowner’s policies are likely to affect only a few homes at a time, and while they can be expensive to remediate, are unlikely to result in the total destruction of the structure.

Earthquakes, by contrast, occur over a large geographic area and—while most do little more than rattle the glasses on the shelf—are capable of leveling buildings or even altering landscapes enough to prevent rebuilding.   

From the insurer's point of view, earthquakes present the potential for hundreds of high-dollar-amount claims following a single event—a risk they are not usually willing to take for the standard homeowners insurance premiums.

Get Covered

Since it’s unlikely that your existing policy covers earthquakes, you will need to purchase either a special endorsement (also called a rider) for your homeowner’s insurance or a separate earthquake policy. Which you choose will likely depend on whether the carrier you use for your homeowners insurance can offer an earthquake endorsement at a competitive price. An independent insurance agent can help evaluate the coverage offered, and decide whether you should look elsewhere for earthquake coverage.

What Earthquake Insurance Covers

Policies will vary from carrier to carrier, but most earthquake policies provide coverage for damage resulting from any sudden movement of the earth including quakes, sinkholes, and sinkholes.

Most earthquake policies provide coverage for both structural damages to your home and damage to its contents. If a tremor causes a roof to collapse and crush a beloved grand piano, your insurance will pay to have both the roof repaired and a new piano—after your deductible has been satisfied.

What it Doesn’t

Damages resulting from the secondary effects of earthquakes are usually not covered. If a quake causes a fire to break out in your home, or breaks open a pipe and causes widespread flooding, the resulting damage will not be considered earthquake damage—even though the earthquake caused the fire or flood. The good news is that these secondary effects are likely covered by your existing homeowners policy.

Homeowners who live near large bodies of water should note that tsunamis—while they are often caused by earthquakes—are not covered by most earthquake policies or standard homeowners policies. For tsunami coverage, you will need to purchase a rider for your homeowners policy that provides coverage for flooding.

It’s worth noting that, unlike homeowners policies, which provide coverage for all structures on your property, earthquake policies usually provide coverage for your home and its contents, excluding landscaping, pools, and outbuildings. Your insurance agent can help you find and purchase coverage for these items if desired.

How Much Does it Cost?

The cost of an earthquake policy or rider will vary widely based on a couple of factors.

Location

The location of your home will play a large role in deciding how much you pay for coverage. Your insurance company will look at the history of seismic activity in your area and make a decision based on the frequency and severity of quakes in your area, and any features particular to your property that contribute to the likelihood of significant damage in the event of an event.

Construction

Your insurance company will also look at the construction of your home and evaluate its ability to withstand tremors. Recently constructed homes built to withstand seismic activity will be easier and cheaper to insure than older homes—especially older homes that have not been retrofitted to better withstand seismic activity. In some cases, an insurance company may require modifications—such as strapping a free-standing house to its foundation—before it will be willing to provide insurance at all.

Earthquake policies, with their regional differences and many exceptions, are a particularly complicated area of insurance, and one that many homeowners are nervous about navigating on their own. From evaluating your current coverage, to deciding between a rider or separate policy, to adding coverage for additional structures on your property, a qualified independent agent can be an immense help in finding the coverage you need at a reasonable price.