Earthquake insurance in California?

[Rein1987]

It seems California is in a high-risk earthquake zone and overdue for a large earthquake. I just got a quote from my home insurance company about adding earthquake insurance and here's the quote:

Coverage: dwelling: 437,000, personal property: 5000, Loss of use: 1500, Building codes upgrade: 10000
Deductible: 65500
Premium: 1268

My house is a 1700 sqft ranch-style house built in 1955. Currently the market price is about 1.5M (about 1.1M land and 400k dwelling) and we have near 900k mortgage left on the house. I think I will be able to survive in the case we do not have insurance and the house is completely down in an earthquake, as our current portfolio size is about half million which will be enough to rebuild the house. However, this would significantly delay all of our financial plan for many years.

The insurance premium looks OK to me, but I feel the deductible is really high. I have a feeling that in normal earthquake we will not reach the deductible at all. So, is earthquake insurance worth it?

If an earthquake hits my house, can I completely teardown and rebuild my house new, maybe cost at 600k in total, and will the insurance company pay 437k out of the 600k total, or do I have to restore the house to the current state? It is an old house that I do want completely rebuild it, even without an earthquake, as most value now comes from the land, and I believe the land value will keep increasing.

[wynr]

I used to get the Earthquake insurance, but the increasing cost and deductable convinced me to drop out about 8 or 10 years ago.

I have heard some radio ads claiming that the "new" Earthquake insurance will be more resonable.  We shall see.

Cheers,
wynr

[NoraLenderbee]

Your deductible is 15% of the value of the house. 10-15% is typical. If your house is destroyed by a quake, you'll get 437K minus 65500, or 371.5K. If your house is damaged but repairable (in the insurance company's opinion), you'll get whatever the repair costs are, minus 65500. That's why most CA homeowners don't have earthquake insurance.

[mustachianteacher]

I agree with what the others said, and our policy is very typical (15% deductible) but the conclusion we came to was that we DO pay for the coverage. We pay about $1100/year for what is essentially catastrophic coverage. I live in the greater LA area, which is long overdue for a truly catastrophic quake. If our house has significant damage and is uninhabitable for any period of time, we'd be pretty screwed. We don't have family nearby whom we'd be able to live with or family who would help with repair costs. If we had to liquidate every account we had -- (tax-deferred retirement accounts included) that would only amount to about 20% of the value of our home. And finally, even if we invested that $1100 every year, it would not amount to enough to cover us in any reasonable period of time.

So, the way I see it, $1100 provides us with the peace of mind to know that, in the event of a truly devastating earthquake, we will not go bankrupt and we'll still be able to retire one day.

[mustachianteacher]

If an earthquake hits my house, can I completely teardown and rebuild my house new, maybe cost at 600k in total, and will the insurance company pay 437k out of the 600k total, or do I have to restore the house to the current state? It is an old house that I do want completely rebuild it, even without an earthquake, as most value now comes from the land, and I believe the land value will keep increasing.

Based on the number of homes that were completely rebuilt after the '89 quake in San Francisco, I'm guessing that's allowed, but that's just a guess. After all, some people pitch in their own savings and build a house that ends up being much better than their old one.

[madmax]

Single family wood homes which are the most common in California are pretty resilient against quakes. Consider how many were destroyed in the Santa Cruz Loma Prieta quake (hint not many).  Personally, I feel that the money on insurance is better spent on retrofitting (reinforcing cripple walls, bolting the foundation).

[bearkat]

Quoted similar deductible % and proportional rate for our place. We choose NOT to get the insurance.

If the earthquake is big enough to destroy your house, it will likely destroy a lot more in your town than just that, and you can always count on the government to come bail you out and bring you water bottles. :-)

[Rein1987]

Thanks for the great advice!

I think I'll live without the insurance. It seems it is unlikely a normal earthquake will cost more than 15% to repair. In the worst case (if I'm still alive) at least I have enough saving to rebuilt my house myself, so I can still sleep well today.

[madmax]

Leaving this out here: http://timber.ce.wsu.edu/Resources/papers/4-3-2.pdf (Wood-frame construction in past earthquakes)

[ShoulderThingThatGoesUp]

...Take your $1.1 million net worth and be damn-near-FI somewhere without earthquakes?

[msilenus]

We don't get earthquake coverage because our house is relatively new and the seismic design standards are very high now.  So it's hard to imagine a quake doing so much damage that we blow through the enormous deductible, and then claw back our premiums.

With older construction, I think it depends on how close you are to your nearest active major fault.  Do some research on how strong large quakes have been in California, and try to figure out how far out from the epicenter major damage extended for those quakes.  Note that damage drops off exponentially with distance.  If you're within this "major damage radius" of a significant active fault line, then I'd take the insurance for a 1955 home.

ETA: If your home is particularly vulnerable to Earthquakes, then the vulnerable radius can be extremely wide.  Loma Prieta was something like fifty miles from San Francisco, but liquefaction caused severe damage in parts of SF.  OTOH: most of the stick-built homes on stable ground in Silicon Valley --which is much closer to the fault line-- survived the quake just fine or with minor damage.  This is the sort of research and analysis I would recommend doing.

[Rein1987]

Leaving this out here: http://timber.ce.wsu.edu/Resources/papers/4-3-2.pdf (Wood-frame construction in past earthquakes)

Thanks for the article. It's really helpful!

[tj]

My prop is valued around $500K in SoCal and my earthquake insurance is approx. $350/year with a 15% deductible thru State Farm.

I thought you could only get EQ insurance through the California Earthquake Authority?

[mustachianteacher]

Leaving this out here: http://timber.ce.wsu.edu/Resources/papers/4-3-2.pdf (Wood-frame construction in past earthquakes)

This is very helpful! I have looked for information like this, and have never found it. Thank you!!