Homeowner, condo and rental insurance policies do not cover damage caused by an earthquake, but coverage can be puchased as an endorsement or a separate policy. Earthquake insurance can be quite expensive depending on where you live. Contact your insurance agent or company to find out what the costs would be for your home.
Earthquakes have occurred in 39 states since 1900, and about 90% of Americans live in areas considered seismically active. Yet only a small percentage of people purchase earthquake insurance.
Even in California, where earthquake fears are a daily fact of life, only about 12 percent of homeowners have earthquake insurance, according to the California Earthquake Authority (CEA), this is down by 30 percent in 1996 when the state legislature first created the CEA.
Each year, more homeowners get rid of earthquake coverage than buy it because, according to consumer groups, they believe the policies cost too much and cover too little. Still 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, there is a 70 percent probability that one or more damaging earthquakes of magnitude 6.7 or larger will strike the San Francisco Bay area during the next 30 years. (A magnitude 6.7 earthquake is equivalent to the 1994 Northridge, Calif., earthquake that killed 57 people and caused $20 billion worth of damage.)
The New Madrid Fault, which runs through Arkansas, Kentucky, Missouri and Tennessee, also has insurers worried. According to the Insurance Information Institute, there's a 40 to 63 percent chance the region will suffer an earthquake with a 6.0 magnitude in the next 15 years.
"The potential magnitude of a catastrophic New Madrid quake dictates that we approach the preparedness on a regional basis," says W.R. Padgett, board chairman of the Central United States Earthquake Consortium. "No one state can possibly begin to address all the issues.
What does earthquake insurance cover?
Ideally, your earthquake insurance policy covers the cost to replace or repair your damaged property. There are several questions to ask your insurance agent when considering a plan, including:
• Does the policy cover only the 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 badly damaged or destroyed?
• Are there any exclusions or limitations to coverage?
• What deductible must you pay before the insurance kicks in?
How much does earthquake insurance cost?
Earthquake insurance rates are determined differently by each insurance company and can vary widely depending on several rating factors.
Generally, older homes cost more to insure than new homes. Wood homes get better rates than brick ones because wood tends to withstand quake stresses better.
In addition, areas are graded on a scale of 1 to 5 for likelihood of quakes, and this might be 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 percent of your replacement coverage limit.