To Earthquake Insurance or to Not

Oh, the $10,000 question.  Or in most cases, the $75,000 question. 

Most of my clients, and even my family and friends, will at some point ask me what I think about earthquake insurance and whether they should get it.  Each time I say “You need to contact an insurance representative, go over the costs together, and then make a decision.”  Or basically I am saying “I abstain from providing any personal judgement in the matter.  If I tell you not to get it, and there is an earthquake, I don’t want you yelling at me.  If I tell you to get it, and an earthquake comes, but your insurance won’t pay, again…no yelling at me.” 

Here is what I will say: You need to way the risk in your life…how risky are you?

I don’t have earthquake insurance.  For me, the deductibles were high enough that we are willing to take the risk.  And I lived in Northridge when the Northridge Earthquake hit so I watched FEMA at work.  Instead, we decided to invest the money into retrofitting our house.  Of course, there is no guarantee with that either, but at least we will get some of that money back when we sell.

In a recent poll, here were some of the comments about earthquake insurance:

“I don’t have earthquake insurance and don’t have a good reason why. However, I do know that only about 1/3 of the households in Albany/Berk area have it according to my Farmer’s agent
Don’t have it.”

“We got it recently mostly to protect our large equity. It about doubles our insurance premium and the deductible is 15%. Pro=peace of mind Con=money down the drain if no EQ. Since we hope no EQ, it’s mind bobbling to be paying so much just in case……”

“EQ insurance is a waste of money! Can you imagine relying on insurance to cover the cost of repairs from earthquake damage, only to find the insurance companies don’t have enough money to go around? Pay for the retrofit and ensure the home’s safety, so you can continue living in the home after the big one and not be put out of housing wondering if you’ll get enough insurance $ to make repairs.”

“We do not have it……it is very expensive and only covers only a percentage of the costs.”

“I have it. It’s expensive…don’t remember how much…also deductible is high…10% value of our house…don’t know why not to have it.”

“I live in a condo and the reason that I don’t have earthquake insurance on my unit is because my HOA doesn’t have insurance for the building – it doesn’t make sense for me to get money to rebuild “my home” without the rest of the building(s) being rebuilt.”

“Don’t carry it.”

“I had it the whole time I lived in Montclair. I was within the fault zone. Many people I talked to think that since the insurance was often denied in the last quake, it’s not worth it. But I always felt that since the last State Ins. Commissioner lost his job over that, it would be tough for them to pull the same thing again. BUT it is critical that the insurance cover full replacement costs – and premium estimates are usually low as they under estimate price/SF.”

“Last I heard, EQ coverage doubles the cost of a standard homeowner’s policy, has personal contents limit of $15,000, and a deductible of 15% of a home’s value ($90,000 on a $600,000 home, for instance).”

“Howard Cook, of Bay Area Retrofit ( says why buy such expensive coverage with poor maximums and high deductibles when you can secure your home with a proper retrofit, especially a flatlands home on stable soils?”

“Yes, I have it. My premium is $1,676/year. Deductible – a whopping $78,000! That’s 10% of the covered single limit of liability of $780,000. I have to have it since I’m so close to the fault line.”

“I sleep better at night knowing I have it, just in case.  And I retrofitted my house.”

This last one is clearly not a risk taker.  How much of a risk taker are you?