The Pros and Cons of Buying Earthquake Insurance

A standard home insurance policy does not cover earthquake damage. You may or may not need earthquake insurance depending on your state of residence. According to the Insurance Information Institute, earthquake damage to homes or belongings threatens millions of people in 42 states.

Even in states like California, the California Earthquake Authority reports that despite a high awareness of the risk of earthquakes, only 10% of Californians purchase earthquake insurance. So, if you don't have it yet and are wondering whether it's worth the money, you're not alone.

Learn some facts about earthquakes, the real risks, and some pros and cons of having insurance that covers damages caused by them.

Are You Really At Risk of an Earthquake?

When considering purchasing earthquake insurance, the first thing you should learn is the actual risks of where you live. The United States Geological Survey has the information you need.

The United States experiences approximately 20,000 earthquakes per year, according to the United States Geological Survey. The majority of people are unaware that they may live in an earthquake-prone area. 42 of the 50 states are threatened. 

Which Geographical Areas Are at Risk of Earthquake Damage? 

The known earthquake zones are depicted on the websites of the USGS. The most active areas are coastlines and mountain ranges, but that doesn't mean there isn't a fault near you. According to the USGS, faults can take thousands or tens of thousands of years to reactivate, so there could be many unknown fault lines across the United States.

Because the records only show known earthquakes and areas mapped by modern sensors, it is impossible to predict whether a quake will occur in areas where there has been no seismic activity in the past.

The Insurance Information Institute outlines the actual risks in each of the United States' regions to assist you in making your decision. Their website can provide information about the risks in the Central, Eastern, and Western United States. A study conducted by the Federal Emergency Management Agency (FEMA) also provides some useful information to help you assess your risk.

The Pros of Earthquake Coverage

The main benefit of purchasing earthquake insurance is that it will protect the money you have invested in your home in the event of a quake.

  • If you suffer earthquake damage and do not have insurance to cover the costs, you may be forced to continue paying your mortgage and find a new place to live out of your own pocket. Your financial obligations, such as your mortgage, will not disappear; rather, they will increase.
  • If an earthquake damages your property, you will be compensated for repairs or rebuilding rather than losing everything or going further into debt to make your home livable.
  • The cost is lower in lower-risk zones, so you won't be paying as much as people in high-risk zones. It is always worthwhile to obtain a quote in order to make an informed decision. If earthquake insurance costs only $20 per month, it might be worth it for the peace of mind it can provide. You could also consider increasing your deductible to lower your monthly payments.
  • If you are unable to live in your home following an earthquake, you may be entitled to additional living expenses while your home is being rebuilt. This way, even if you're still making mortgage payments on that house, you're not paying for a place to live as well. If you have to make payments on your old mortgage and find a place to live while your new home is being built, your costs could triple.

Cons of Buying Earthquake Insurance

Aside from price and cost, there aren't many drawbacks to earthquake insurance.

  • It may be more expensive in riskier states. Based on the amount of risk, you must decide whether you can afford to pay for earthquake damage or if you require insurance assistance.
  • You will be required to pay a high deductible in addition to the one on your standard home insurance policy. The deductible for earthquake insurance is typically a percentage of the coverage on the building amount, such as 5% of the home's value. 

Current Trends That Make Buying Earthquake Insurance Important

You don't have to live near or on a fault line to feel the ground tremble or suffer damage. Modern disposal methods could be to blame.

A 5.8 magnitude earthquake struck Oklahoma in 2016. This earthquake could have been caused by human activity such as waste water fluid injection into deep wells. Fracking has been linked to 1%–2% of all human-caused earthquakes; the rest are caused by wastewater injection. 

  • If you live in an area where there is fracking or mining, you may be more vulnerable to earthquakes than in the past. Get an earthquake insurance quote from your insurance agent. This will help you decide whether it is worthwhile to add a few dollars to your budget.

What Kinds of Damage Do Earthquakes Cause?

Aside from being shaken apart, an earthquake can damage your home in a variety of ways. Your policy's earthquake coverage may include:

  • Partial or total damage
  • Collapse
  • Structural damages that create dangerous circumstances and require repair
  • Landscaping and other property damage
  • Explosions
  • Fires
  • Gas Leaks
  • Avalanche/landslide damage
  • Flood and water damage

The Outlook for Earthquake Insurance Costs

Insurance is based on the insurer's ability to pay out losses and collect enough money to cover claims that arise. Because there aren't many people purchasing earthquake insurance, the cost is higher because there isn't enough money being collected overall.

If more people bought it, the price of the insurance would fall. There are usually long periods between disasters, allowing companies to collect enough to cover costs and damages.

Weighing the Pros and Cons of Earthquake Insurance

Only you can decide whether it is worthwhile to pay for earthquake insurance. It is difficult to forecast when an earthquake will occur. While some areas may experience prolonged periods of low activity, it only takes one major event to damage or destroy your property.

This insurance is designed to protect the money you've put into your home. By not having it, you risk having your home damaged and losing property that you cannot afford to repair or replace.

If you have a mortgage, you may end up paying even more because your mortgage company will still want to be paid even if your home is destroyed by an earthquake. If you pay off your home, you lose all of the value that has accrued over the years with no way to recoup the loss.

The best course of action is to educate oneself. Examine the Earthquake Hazards Program website for official data from the US Geological Survey about the region you live in. This program provides information about your state and resources to help you decide whether you should get earthquake insurance for your home.

Frequently Asked Questions (FAQs)

How much does earthquake insurance cost?

There are far too many variables in insurance costs to provide a single average that all homeowners can expect to pay. Instead, consider the factors that insurers will consider. Older homes, for example, are more expensive to insure, and earthquake-prone areas will have higher insurance costs. You can reduce these costs by adjusting your deductible and coverage amounts.

What happens if you don't have earthquake insurance?

If you do not have earthquake insurance, you are exposing yourself to significant financial risk. If you are fortunate enough to avoid an earthquake, nothing will happen to you because you did not have insurance. However, if an earthquake occurs, you may not be able to recover. If an earthquake destroys your home, you will have to find another place to live without financial assistance from your insurer.