Do I Need Earthquake Insurance Where I Live?

Chile’s recent earthquake of an 8.2 magnitude and the tsunami that followed was prepared for the disaster with strong building codes as well as elaborate evacuation plans that have saved hundreds of lives.

Some people mistakenly believe a standard homeowner’s policy will cover earthquake damage. But Michael Barry, spokesman for the Insurance Information Institute, says a standard policy will only cover some damages in the aftermath of a quake, such as from a fire. A special rider, or endorsement, is needed to collect on damages from the quake itself.

Few people in the United States have this rider, despite the history of earthquakes in some states and likelihood that another could occur. In California, residents can get earthquake insurance, which is a separate, companion policy to their homeowner’s policy, not a rider.

In Missouri, after over 200 years of the devastating New Madrid earthquake that continues to tremble, the percentages of people having a rider are hovering around 30 percent to 45 percent, but drastically decreasing, John M. Huff, director of the Missouri Department of Insurance, said.

Insurance officials cite cost of premiums, high deductibles, complacency and the belief that their homeowner’s policy will cover any damages as reasons. Others mistakenly believe the federal government will bail them out, but federal loans must be repaid.

In Missouri, the earthquake rider costs up to $15 a month in higher risk areas, said Department of Insurance spokesman Travis Ford. However, the deductibles are 10 to 15 percent for the house itself and another 10 to 15 percent for its contents. “If a house is insured for $200,000, $60,000 would be deducted from the payment,” Ford said.

Research shows that information is lacking about the real costs and responsibilities for household recovery. Some Californians, for example, believe their homeowners policy will cover earthquake damage, which is not true—a separate policy is required. Without an earthquake policy, Californians with damaged homes or contents will be responsible for all costs to repair and rebuild their homes and replace their personal property.

California Earthquake Authority has actually reduced its insurance rates by some 45 percent over the past 15 years. And with a CEA policy, once the value of covered damage exceeds the deductible, claim payment can begin with no cash out of pocket from policy holders, according to Glenn Pomeroy, Chief Executive Officer.

Not only is it essential in certain areas to have earthquake insurance, all of us, regardless of our living quarters, would benefit from life insurance which is at an all-time low.

Leave a Comment