By Arthur Murray

Earthquake insurance suffers from bad PR. Homeowners either don’t know they need it, think it’s too expensive, complain about its deductible or debate its overall benefits. But going without coverage is a gamble, and the odds can get progressively worse depending on where you live.

Homeowners who don’t purchase earthquake coverage could find their finances swallowed whole should a temblor (as quakes are also known) strike. That’s a pretty big risk.

Why you need it

Let’s get one thing straight. Standard home insurance policies exclude earthquakes from the perils they cover. That means if you don’t have an earthquake endorsement or a separate earthquake policy, you won’t get any help from your insurance provider for damage caused by an earthquake.

Here are a few more facts you should know about earthquakes, your home and your home insurance.

  • Not just California. Earthquakes don’t happen only in the Golden State. According to the Insurance Information Institute and the U.S. Geological Survey, 42 states are at risk of earthquakes. The most damaging quake in U.S. history occurred in February 1812 in New Madrid, MO, with $112 billion in losses (adjusted for inflation), according to estimates by AIR Worldwide Corp. The third most damaging occurred in Charleston, SC.
  • A lot of shaking. About 20,000 temblors, most very small, occur in the U.S. each year.
  • Here’s the damage. Insured losses from earthquakes in 2014 were about $313 million, according to Swiss Re. That’s nearly 700 percent higher than the previous year.
  • You’re all a-loan. If you’re counting on the federal government to help after an earthquake, you’re likely to be disappointed. Most federal disaster aid comes in the form of loans, and must be repaid.

What it costs

The cost of earthquake insurance varies widely according to the risk factor where you live and the age and type of your home. Older homes generally are considered more vulnerable to damage, and brick homes typically cost more to insure than wood ones.

So how much will you pay for coverage? According to the California Earthquake Authority, premiums average nearly $800 a year. The cost is much less in states where the threat is lower. In Oklahoma, for example, coverage can range from $45 to $300 a year, according to the Oklahoma Agents Alliance.

Earthquake deductibles

Here’s where many homeowners find an issue with earthquake insurance. A deductible is the amount a policyholder agrees to pay toward a claim, with the insurance provider picking up the rest, up to the limits of the policy.

Under standard home insurance, the deductible typically is a dollar amount — say $1,000. Say a tree fell on a homeowner’s roof, causing $4,000 worth of damage. The homeowner would pay $1,000, with the provider picking up the rest.

But earthquake insurance deductibles usually are expressed as percentages of the total value of a home. That percentage can range between 2 percent and 20 percent, depending on the amount of risk and other factors.

So a homeowner with a $200,000 house and a 20-percent deductible who suffers $50,000 worth of damage would have to pay the first $40,000 toward a claim before the earthquake coverage would take effect. If the damage is less than $40,000, the provider wouldn’t pay the policyholder anything.

Those are the numbers that scare many homeowners away from an earthquake policy.

Overall benefits

In many ways, earthquake coverage is like flood insurance. It’s a nuisance — and a costly one at that — until you need it. Even in the scenario above, wouldn’t you rather borrow $40,000 for repairs than have to foot the bill for $200,000? (Remember, you’ll still be liable for paying your mortgage even if the home is destroyed.)

One other benefit: Standard earthquake coverage also protects your home’s contents: your furniture, electronics, clothing and other possessions (up to your policy limits).

The decision on coverage

Only about 10 percent of Californians purchase earthquake coverage, according to the state’s insurance department. Nationally, just 7 percent of homeowners buy it. The number is even smaller in the Northeast, where only 2 percent of homeowners have earthquake protection.

While misery loves company, few uninsured victims of an earthquake would find real solace in the fact that their neighbors are ruined, too. Some folks will continue to gamble, figuring they can beat the odds of damage. That may be — but think of the consequences for those who end up on the wrong side of that bet.


Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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