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Lenore and A…, Real Estate Pro in Vista, CA

Should I buy earthquake insurance if I live in California?

Asked by Lenore and Alex Wilkas, Vista, CA Fri Jun 1, 2007

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Tolerance for risk is an individual assessment. I did not have tornado insurance in the midwest, or earthquake insurance in CA. I carry hurricane insurance in FL (second home), but not in NJ.

Because of the hurricane damage in FL over the recent years, fears were validated and there is a greater need for the peace of mind that the insurance policy provides.

When several years escape us without incident, we become complacent. The risk is still real, so yours is a very good question. The answer, however, is an individual one. The emotional and stress reaction you have to "What if....?" will help you measure your own risk tolerance.
3 votes Thank Flag Link Tue Aug 7, 2007
Deborah Madey, Real Estate Pro in Brick, NJ
MVP'08
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Only a tiny fraction of Sacramento residents carry earthquake insurance. The big risk here is flooding from one or more rivers.
When I worked as a disaster loan officer I saw hundreds of files from the 2001 Seattle (Nisqually) earthquake. Fortunately, no one died directly from that quake, but there were billions of dollars of damage. mostly in $15,000 to $25,000 chunks as people had to fix chimneys, doors, windows, and yes foundations.
EQ insurance is ghastly expensive, has huge deductibles.
I don't buy it myself as there is no fault zone within 50 miles of me. - it depends on your risk comfort level whether to pay for the "peace of mind"
3 votes Thank Flag Link Tue Aug 7, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
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Before we moved to California, knowing that we will be in the earthquake zone, I told my husband that I am NOT moving here unless we had earthquake insurance, there was just no negotiation about this. So we did (not that we had tornado insurance when we lived in Kansas City, nor Indiana, nor Dallas, mind you)

It turns our that we live right in between two famous faults, isn't that sweet. So we have continued to pay for the insurance, I don't even ask how much it costs. To me, this is something for catastrophic purposes, and hopefully we never have to use it and buys me just a lttle peace of mind.

Anyway, I got curious, so I looked online and found a nice article http://moneycentral.msn.com/content/Insurance/Insureyourhome…

In the article there is a link to 'Fortified ... for a safer living'... will also be a good read.

Sylvia
2 votes Thank Flag Link Mon Aug 6, 2007
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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Like the others have said, earthquake insurance is expensive, definitely not cheap. Even for our condo in Hayward (where insurance is absolutely essential), the earthquake insurance premium is a little over double our condo insurance.

From what I've been told from by the insurance company that I have, earthquake insurance is only provided by the California Earthquake Authority, their link is here: http://www.earthquakeauthority.com/. The link has educational information on it including calculating your premium, participating insurance providers, earthquake safety, etc.

I am not sure how true that statement is that only CEA provides insurance since my knowledge comes straight from my insurance provider, Liberty Mutual, and not my own personal research. But from what I've seen all of the bills that I receive for my earthquake insurance basically comes from CEA. Liberty Mutual just is the funnel in which it goes through to get to me. I'd say get it! It's a must for the peace of mind as others have already said.
Web Reference: http://www.simpluxe.com
2 votes Thank Flag Link Mon Aug 6, 2007
As others have mentioned, earthquake insurance is really for your piece of mind. An even better investment would be to hire a structural engineer to do a seismic inspection and help you design an upgrade to the home to meet the most current code standards related to earthquakes. Today's codes are very strict when it comes to earthquakes and you should expect a home to withstand a 6.5 earthquake with no structural damage.
The most important upgrade to do is to make sure that the house is actually attached to the foundation. Believe it or not, many older homes are just "resting" on top of the foundation. When an earthquake occurs, the house slips off the foundation and then collapses. A few steel straps and hold downs can go a long way in keeping your home together in a seismic event. And, the cost of such an upgrade is usually around $2500-$4500 depending on the size of the home.
2 votes Thank Flag Link Fri Jul 20, 2007
Jennifer Kre…, Home Seller in 95124
MVP'08
Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property. Most ordinary homeowners insurance policies do not cover earthquake damage.

Most earthquake insurance policies feature a high deductible, which makes this type of insurance useful if the entire home is destroyed, but not useful if the home is merely damaged. Rates depend on location and the probability of an earthquake. Rates may be cheaper for homes made of wood, which withstand earthquakes better than homes made of brick.

As with flood insurance or insurance on damage from a hurricane or other large-scale disasters, insurance companies must be careful when assigning this type of insurance, because an earthquake strong enough to destroy one home will probably destroy dozens of homes in the same area. If one company has written insurance policies on a large number of homes in a particular city, then a devastating earthquake will quickly drain all the company's resources. Insurance companies devote much study and effort toward risk management to avoid such cases.


California
Earthquake insurance has become a political issue in California, whose residents purchase more earthquake insurance than residents of any other state in the U.S. After the 1994 Northridge earthquake, nearly all insurance companies completely stopped writing homeowners' insurance policies altogether in the state, because under California law (the "mandatory offer law"), companies offering homeowners' insurance must also offer earthquake insurance. Eventually the legislature created a "mini policy" that could be sold by any insurer to comply with the mandatory offer law: only structural damage need be covered, with a 15% deductible. Claims on personal property losses and "loss of use" are limited. The legislature also created a quasi-public (privately funded, publicly managed) agency called the CEA California Earthquake Authority. Membership in the CEA by insurers is voluntary and member companies satisfy the mandatory offer law by selling the CEA mini policy. Premiums are paid to the insurer, and then pooled in the CEA to cover claims from homeowners with a CEA policy from member insurers. The state of California specifically states that it does not back up CEA earthquake insurance, in the event that claims from a major earthquake were to drain all CEA funds, nor will it cover claims from non-CEA insurers if they were to become insolvent due to earthquake losses. Most policies are becoming more affordable again. Many of my clients are purchasing policies and I would recommend doing so even if it is costly. It is better to be prepared.
2 votes Thank Flag Link Thu Jun 7, 2007
The first thing to look at when considering earthquake insurance in California is the amount of equity that you have in your home. With the high deductibles on earthquake policies, if you have very little equity to protect, then an earthquake policy may not be worthwhile. It doesn't take total destruction of a house to generate huge repair bills.
1 vote Thank Flag Link Sun Jul 22, 2007
I constantly struggle with this question and think ultimately it depends on how much risk you are willing to take. I was around for the 1989 quake in the bay area and if you lived in certain areas and had it you would have been thankful, however where i was living, pleasanton, we shook a lot but the damage was minor and the deductible was so high that insurance did not kick in.

I think the best advice is for home owners to understand how close to a fault line they are, what year the home was built, how much it is worth, etc. and talk with their insurance agent to evaluate the risk.
1 vote Thank Flag Link Sun Jun 3, 2007
I have seen some mention about distance to earthquake faults and although it is true that earthqaukes occur where there are fault traces, it is not true that if you are not close to fault you are not at risk for sesmic related damage to your home. Just ask folks in the Marina District who live nearly 70 miles from the epicenter of the Lome Prieta Earthquake on the San Andreas Fault. Yes, generally seismic risk does decrease the further you move from faults, but evaulating the stability of the soil and the structural integrity is nearly as important.
Web Reference: http://www.bluenhd.com/
0 votes Thank Flag Link Wed Aug 8, 2007
The rates I have seen have had prohibitively expensive premiums with high deductibles. I agree with the earlier poster that a good defense is to take a look at the JCP report from the seller's disclosure which will give an idea of the proximity to the major fault lines in the area -- the San Andreas and Hayward faults being the two major fault lines in the Bay Area. Knowing your risk exposure level can help make an informed decision based on your risk tolerance.

-Josh
Web Reference: http://www.BayAreaREI.com
0 votes Thank Flag Link Sat Jul 14, 2007
The cost of insurance has come down quite a bit. A standard policy would cost around $1000 for a $500,000 dwelling coverage. Deductible can be 10 or 15%. The enhanced policy covers more belongings and is in the $1500 range. Although having a 10% or 15% deductible seems high, it's not that bad -dwelling only, not the total value of the property. It's also a good idea if you are carrying lots of equity in your property - you want to protect that investment.

Seems like it is not a bad thing to have given the likelihood of another big one. I have it.
0 votes Thank Flag Link Fri Jun 1, 2007
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