What is earthquake insurance?
Damage to a home caused by an earthquake is normally not covered by a standard home insurance policy. In some areas of the country, earthquakes are quite common and can cause devastating damage to a home. Luckily, earthquake insurance can usually be purchased as additional coverage to a home policy or be purchased as a separate standalone policy, so that you can be protected from this peril.
Earthquake insurance is much the same as a standard home insurance policy in terms of providing coverage for the dwelling, other structures, personal property, and additional living expenses, but with some differences in how the deductible works.
How does an earthquake insurance deductible work?
In some cases, an insurer may use a flat dollar deductible like that of a standard home insurance policy, in their earthquake insurance policy, but it is pretty rare. Most insurers use a percentage deductible to implement earthquake insurance. In earthquake policies, there are typically separate deductibles for the different sections of coverage and the percentages are typically quite high, usually ranging from 5 to 25%. This percentage is in relation to the dwelling coverage limit in the homeowner’s standard home insurance policy. Let’s say the coverage limit for the dwelling is $250,000. This means that the deductibles in the earthquake insurance policy may range from $12,500 to $62,500. These numbers are far more expensive than deductibles in a standard policy which typically range from $500 to $2,000.
As mentioned above, insurers have different deductible percentages for different sections of coverage. A typical example might be a 15% deductible for earthquake damage to a dwelling and a 2% deductible for personal property damage. Using these numbers, let’s assume that the dwelling coverage limit is $250,000 and the personal property coverage limit is $50,000. An earthquake hits and damages the home leading to damage that equals these coverage limits. In this case, the homeowner would be responsible for $37,500 of dwelling damage repairs and $1,000 of personal property damage repairs, while the insurance company will foot the bill for the remaining $212,500 and $49,000 respectively. While a large expense to the homeowner, it is still far less than having to pay the entire amount to rebuild.
These high deductibles are utilized by insurance companies to better protect themselves as well as keep premiums lower for homeowners. Earthquakes are quite common in some areas of the country, especially in California and along the west coast. These areas will have higher deductibles and higher premiums for earthquake insurance.
Ways to afford high earthquake insurance deductibles
It is possible that if disaster does strike and you as the homeowner cannot afford to pay the deductible in your earthquake policy, you may be able to get financial assistance from FEMA. This typically happens when FEMA designates an area as a disaster area and that area is where your house is located. Another option is to take out a loan from the small business administration, who offers homeowners and small business owners disaster loans when a natural disaster occurs. Both of these options may help you get the money you need, sooner, so that you can begin rebuilding your life to how it was before the disaster.
Summary
In most standard home insurance policies, earthquakes and other ground movements are excluded perils. Homeowners sometimes have the ability to add on earthquake coverage as an endorsement to their policy or can opt for a standalone policy. Earthquake insurance is quite expensive and the deductible for earthquake insurance can be huge, but going without earthquake insurance may be even costlier. Luckily there are some organizations like FEMA and the SBA that can help a homeowner meet their deductible so that their earthquake insurance policy will kick in and repairs can begin sooner rather than later.
