Author Topic: Thoughts on earthquake insurance  (Read 4893 times)

alphalemming

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Thoughts on earthquake insurance
« on: September 04, 2014, 09:29:22 AM »
Anyone, specifically California residents relooked at this coverage recently.  We had an minor earthquake (not minor for those at the epicenter) last week that got me thinking about this coverage again.  Additionally, I believe the product has evolved since I last cancelled my policy such that you can insure contents differently from the coverage of the structure.  Interested in other peoples' thoughts about this.  Cheers.

DoubleDown

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Re: Thoughts on earthquake insurance
« Reply #1 on: September 04, 2014, 09:41:11 AM »
I have never priced earthquake insurance, but assuming it's priced decently like most other insurance for catastrophic events, I could not imagine owning a home along any of the at-risk places in California without it. I lived in California for 25 years, and earthquakes are frequent enough that it is a risk that should be taken seriously IMO. The thought of owning such an expensive asset without insurance coverage makes no sense to me. I'd say the risk of damage from earthquakes in CA is up there with the risk from fire, and everyone has that coverage.

johnny847

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Re: Thoughts on earthquake insurance
« Reply #2 on: September 04, 2014, 05:00:26 PM »
While I don't live in CA, my general take on insurance or warranties in general is that it is set up such that in the long run, the insurance company makes money. However, I will always get insurance for things when:

1) It is legally required, such as a baseline level or car insurance
2) While the event that the insurance covers is a low probability event, if it were to occur, the predicted cost to fix whatever happened has the potential to wipe out a significant chunk of my net worth.

Earthquake insurance would fall into this category in a place like CA. And I'm guessing that there's enough competition out there that the insurance premiums aren't outrageous.

But I will always get the insurance with the highest deductible, and then just add the amount of that deductible to my emergency fund.

MGeegs

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Re: Thoughts on earthquake insurance
« Reply #3 on: September 04, 2014, 05:41:20 PM »
Coming from New Zealand, what I can see is that when there's a really big one (Christchurch 2011) the insurance companies can't handle it and fall apart, and even when the government steps in... it's 4 years later and repairs still aren't done.

I've resigned myself to the fact that in the event of The Big One, it might just be easier to walk away...

http://www.stuff.co.nz/the-press/news/christchurch-earthquake-2011/10457378/Christchurch-rebuild-just-10pc-complete
http://www.radionz.co.nz/news/canterbury-earthquake/114773/hundreds-in-christchurch-insurance-protest

Northerly

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Re: Thoughts on earthquake insurance
« Reply #4 on: September 04, 2014, 05:48:05 PM »
I live in Interior Alaska. My house is in a flood zone, so my mortgage holder requires that I have flood insurance. Flood insurance through the National Flood Insurance Program (US Government) is a ripoff, so I bought insurance through the National Catastrophe Insurance Program (private, originates with Lloyd's of London).  My premium is half the NFIP rate, coverage is to actual replacement value (instead of capped at $250,000), and coverage is for flood, earthquake, and mudslide.

NoraLenderbee

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Re: Thoughts on earthquake insurance
« Reply #5 on: September 04, 2014, 06:06:25 PM »
I'm in California and I don't have earthquake insurance because it's expensive the deductible is 10% of the value of the home. Not 10% of the repair cost--10% of the total property value. If your house is valued at $600,000--not unusually high here--you need to cough up $60K before you'll get a penny. It's worth it if your house is completely destroyed, but if you have "only" 50K worth of damage, you get nothing.

Another Reader

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Re: Thoughts on earthquake insurance
« Reply #6 on: September 04, 2014, 06:19:48 PM »
I live in California in the Bay Area and I no longer carry earthquake insurance.  The base deductible is 15 percent, you can pay extra for 10 percent.  The replacement cost for the structure estimated by my insurance company is around $600,000.  That means I would have to incur $90,000 of damage under the base policy or $60,000 under the enhanced policy before I collect a penny.

I live in the hills, on bedrock.  I sustained no damage in the Loma Prieta earthquake.  My guess is a 7.5 on the Hayward fault is going to cost me some money, but not $90k.  A catastrophic earthquake in an urban area is going to destroy a lot of insured properties, and even after a couple of decades of premium payment investments, I doubt the CEA would be able to pay all claims.

In addition, I recently read a comparison of people that had earthquake insurance and received payment vs people that did not but were able to take advantage of federal disaster programs. I forget which earthquake it was, but the people that got the federal disaster aid were about as well off as the insured people were.

If you just had an earthquake there is a waiting period to get a new policy.  Check with your insurance agent.

electriceagle

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Re: Thoughts on earthquake insurance
« Reply #7 on: September 04, 2014, 06:45:08 PM »
The previous posters have it right.

The average home value in SF is $1MM. Earthquake insurance has a deductible of 10-15% of home value. If you have a $1MM home with a 15% deductible and $200k in damage, you get $50k.

Now, heres the other catch. In areas like this, the majority of the value of the home is in the land. Your $1MM home might be $300k of structure and $700k of land. The only way for you to get even one dollar out of the earthquake insurance is if your house needs to be rebuilt 50%.

Earthquake insurance premiums are around 150% of regular homeowners insurance premiums.

The best earthquake insurance is to buy something that survived Loma Prieta without a crack.

Another Reader

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Re: Thoughts on earthquake insurance
« Reply #8 on: September 04, 2014, 07:57:43 PM »
Insurance is not based on the market value of the property.  It is based on the replacement cost of the improvements as estimated by the insurance company.  My insurance company estimates it will cost $600k to rebuild my property if it were completely destroyed.  The market value is far more than $600k, but I'm not insured for land, which is assumed not to lose value.

I actually upped my structural cost estimate by talking to the agent and reviewing all the extras like hardwood floors.  The agent upped the building quality classification to account for those and other finishes and enhancements.  Replacement cost is not the same as reproduction cost.  If you have done a lot of remodeling or put in better quality than builder grade, it would behoove you to talk to your agent to make sure you are adequately covered.

johnny847

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Re: Thoughts on earthquake insurance
« Reply #9 on: September 04, 2014, 08:21:28 PM »
Wow I totally did not understand how earthquake insurance premiums are assessed, and I retract my earlier statement.

flyfig

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Re: Thoughts on earthquake insurance
« Reply #10 on: September 05, 2014, 12:56:39 AM »
I just canceled my earthquake insurance right before the last shaker.
One more complication- I own a condo and so the earthquake insurance only covers to the value of the condo insurance (a fraction of the total value/cost for the unit). This excludes the building (covered under a separate building policy via the HOA).
My old policy costs 200% of my condo insurance and is very limited (as prior posters have mentioned). Given the cost, it would be astronomical to get the building earthquake insurance. My judgement is that it does not feel like a good value.

SnackDog

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Re: Thoughts on earthquake insurance
« Reply #11 on: September 05, 2014, 05:03:10 AM »
It all depends on your house and the substrate. It is actually pretty hard to shake apart a wood-frame house.  There are videos on youtube of engineers trying it.  If your house is brick, that's another matter as 1-3 story brick structures fall apart pretty readily under shaking.  Homes can come off their foundation.  Home built on any kind of unstable ground can be destroyed.  Also it doesn't take much movement to spring a gas leak and burn the place to the ground (although that should be covered by homeowners insurance).  All that said, I have not been attracted to earthquake insurance for our properties, partly for the reasons above - I'm happy to self insure for the amount of damage I forsee as it may not greatly exceed the deductible.  EQ premiums are more than HO premiums!  I take EQ resistance pretty seriously when selecting a home.

DoubleDown

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Re: Thoughts on earthquake insurance
« Reply #12 on: September 05, 2014, 12:21:39 PM »
Wow I totally did not understand how earthquake insurance premiums are assessed, and I retract my earlier statement.

Yeah, me too (well, the deductible part, not the premiums). So much for thinking it would be priced and structured reasonably like other forms of catastrophic insurance.

wberkgal

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Re: Thoughts on earthquake insurance
« Reply #13 on: September 06, 2014, 12:36:09 PM »
We live in the Bay Area and have earthquake coverage, although I think about cancelling it every year. We have a very small house, older but not historic, which we bought in 2000 for under $300,000 and is now worth double. Our mortgage is very small (and 3% fixed for 30 years--yay!) so we have quite a bit of equity and would not like to refinance either. We are also in our early (very) 60s and retired. We seem to feel every tremble from the small earthquakes that occur in the hills to the east of us, and we are within a few blocks of the bay. Therefore we have much, probably too much insurance. Only the homeowners is required by our mortgage holder:

Homeowners: $512/year $5000 deductible, and dwelling replacement $243,000 with Allstate

Earthquake: $810/year $36415 deductible, same dwelling as HO and $5000 personal property, $1500 loss of use, $10000 building code upgrades, with California Earthquake Authority

Flood $414/year $1000 deductible, building $250000, contents $100000, flood zone C. Through Allstate but is likely federal flood insurance.

I looked up the insurance carrier that the earlier poster in Alaska mentioned, but they do not write in California. We may cancel the flood insurance when Berkeley finishes fixing the storm sewer system (periodic floods around here during heavy rain.) However, the chance of a major earthquake along the Hayward fault is really high, and I don't like our odds if that happens. On the other hand, if there are too many claims from that earthquake, the insurance is sort of worthless anyway.  In big letters on the policy "If losses as a result of an earthquake or a series of earthquakes exceed the available resources of the CEA, this policy is not covered by the California insurance guaranty association. Therefore the California insurance guaranty association will not pay your claims or protect your assets if the CEA becomes insolvent and is unable to make payments as promised."

So that's why people in California don't have EQ insurance.