Even if you have a robust homeowner's insurance policy, you still may not be covered in the event of an earthquake. If you live in an area where earthquakes are prevalent, it becomes extremely important to add earthquake coverage on top of your current policy or buy a stand-alone coverage policy.
Premiums and deductibles can get pretty high in earthquake-prone regions, which can too often convince policyholders that the investment isn't worth it. The trouble arrives when an earthquake does hit and homeowners are left without insurance to help put the pieces back together.
The Need for Earthquake Insurance
Despite the challenges that earthquake insurance presents, it's essential for anyone that lives near a fault line or in an area with a lot of seismic activity.
Earthquakes can strike without any warning, at any time, at any place. You can live in uncertainty or you can make your best efforts to ensure that you and your family will be safe and protected if an earthquake does happen.
Beacon Point Insurance offers earthquake insurance guidance in Kansas City, throughout Missouri, and across the U S in states such as Kansas, Oklahoma Utah and California.
Is Earthquake Insurance Worth Getting?
Earthquake coverage is not required by law and is usually only required by mortgage lenders when your home is located in an area of high risk.
Missouri is one of the leading markets for earthquake damage insurance, coming in third right behind California and Washington. According to the U S Geological Survey, there is a 7-10 percent chance that Missouri (in the New Madrid Zone) will experience a 7.5 magnitude earthquake within the next 50 years and a 25-40 percent chance it will experience a 6 magnitude earthquake over the same period.
For areas like this, it becomes especially important to add an earthquake endorsement to your current homeowner's policy. But if you live in any area with seismic activity, it's a good idea.
If you are considering whether or not earthquake insurance coverage is appropriate for your property or pondering about earthquake insurance in Kansas City is it worth it, review the following factors:
- How far your home is to a fault line
- The type of construction of your home (brick and stone homes are at higher risk)
- The level of earthquake resistance your home has
What Happens if You Don't Have Earthquake Insurance?
If there were an earthquake Missouri today and you lived within a few hundered miles or more, would you be protected? If you don't have earthquake insurance, you might be put in a very difficult position.
Not only will you be facing all the costs of fixing any home damage all on your own, but you'll also still be on the hook for your other financial obligations including your mortgage and other bills.
Earthquakes can create a lot of damage in their wake. Some of the most common kinds of earthquake damage that you could be facing without an earthquake policy from your insurance company include:
- Building collapse
- Structural damage that creates dangerous conditions
- Damage to structures like swimming pools or guest houses
- Gas leaks
- Flash Floods
- Tsunamis near the coastal regions
What Happens if Your House is Destroyed by an Earthquake?
What happens if your house is destroyed by an earthquake depends on what kind of earthquake coverage you have.
Results Without Insurance
California is an area with some of the highest seismic activity in the United States. According to the California Earthquake Authority, if you live in California and do not have earthquake insurance, you won't be covered for any damage or additional costs incurred by earthquake damage. This includes the loss of your home.
New York, an area that is not as well-known for its earthquake activity, is just the same. Without a separate policy added on just for earthquakes, your homeowner's insurance will not cover any damage left behind.
Results with Insurance
Now, if you do have earthquake insurance, things will look a lot different after the quake comes.
Let's say your earthquake policy covers up to $100,000. Your home is destroyed by a earthquake, and you submit a claim for $150,000.
You will be responsible for paying a portion of this claim, which is usually between 10-20 percent. Let's say it's 15 percent, so your responsibility is paying $22,500 towards that cost.
When your deductible is taken from your claim amount, the leftover claim amount is $127,500. From that, your insurer will pay out up to the maximum coverage limit, which was $100,000.
Then, there's an additional $27,500 left that you will also need to take on. That means your responsibility as the homeowner is to pay $50,000 of your $150,000 in damage.
In this same situation, someone without earthquake insurance would be responsible for paying the full $150,000 in addition to their bills, credit cards, and any incurred cost for living expenses while repairs happen.
Can I Get Earthquake Insurance Coverage After an Earthquake?
You can certainly add earthquake insurance coverage at any time, but understand that your coverage will not work retroactively. That is to say that you won't be covered for any damage that you just sustained from an earthquake during a time when you did not have coverage.
It's also important to note that many insurance companies will stop selling earthquake-specific policies for some time directly following an earthquake. This can last for a few weeks or up to two months.
While this might not make sense at first thought, it's because oftentimes earthquakes don't occur as isolated incidents. Dangerous aftershocks can still occur even after the original quake has come and gone, and they're often at different locations than the original epicenter. An aftershock that happens in a very populated area can become more damaging than the initial quake.
So, while you can usually buy your earthquake policy at any time, you may be limited in coverage options soon after a damaging quake takes place. For this reason, it's crucial to get your insurance coverage in advance so that you are already protected should any seismic activity happen.
How Do I Choose Earthquake Insurance?
Finding and choosing the right earthquake insurance can be overwhelming. It's always a good idea to start with your current homeowners or renters insurance company to see what coverage options they have available.
If you live in a state where earthquake insurance is less common, you'll need to contact an independent insurance agent like the advisors at Beacon Point to help guide you to some coverage options. You can also review the Department of Insurance website for your state. Here, you should be able to find some resources to identify a licensed earthquake insurance company.
Your earthquake coverage will usually have the same limits as your home insurance. If you feel that you need additional coverage for earthquakes, you can raise your limit to your insurance company's maximum cap.
Earthquake Insurance Cost
Earthquake insurance can be known to be on the high side in high risk areas, but it directly relates to the insured value of your home, also known as the dwelling coverage limit with relationship to the risk of damage from an earthquake. If you live in a lesser risk earthquake area, then your policy would be pretty inexpensive.
This limit is designed to be equal to the cost of rebuilding your home at current labor and construction rates. Naturally, larger homes will come with higher rates than smaller ones.
Additionally, these factors will also play a role in determining your monthly rates:
- Home foundation
- Home age and location
- Additional endorsements
- Construction type
How Much Does it Cost to Add Earthquake Insurance?
Earthquake insurance costs will vary depending on the region in which you live. To get a better understanding of the price ranges, let's take a look at the cost of insurance in a few different states.
- Average annual cost of earthquake insurance in Missouri: $452
- Average annual cost of earthquake insurance in Utah: Between $500-1,000
- Average annual cost of earthquake insurance in New York: $437
Contact Beacon Point today to get better estimate of what your costs would be.
Understanding Earthquake Insurance Deductibles
Your earthquake deductibles are calculated as a percentage of the insured value of your home. You will typically need to pay individual deductibles for each part of your policy. For example, one deductible for your personal property and another for your structures. Luckily, additional living expenses are not typically subject to another deductible.
This is different than most homeowners' policies, which only require you to pay a single dollar amount deductible. You will be responsible for paying whatever pre-determined percentage of your actual damage. Whatever is left after your deductible, your insurer will pay up to your coverage limits.
What Is the Deductible for Earthquake Insurance?
Wondering why the earthquake insurance deductible is so high? It's primarily because earthquakes are few and far between. This large, totally unknown risk can lead to catastrophic damage. Because there's still a lot of guessing involved, it's harder to predict the cost to repair the damage. This leads your insurance company to require higher deductibles just to cover their bases.
Let's say you are insured through the California Earthquake Authority with coverage limits up to $200,000 and a 25 percent deductible. You only sustain $180,000 in actual damage. You'd be responsible for paying $45,000 of the cost while your insurance would cover the remaining $135,000.
This formula pretty much works the same regardless of whether you live in New York, Hawaii, or anywhere else.
Does FEMA Cover Earthquake Damage?
FEMA may be able to offer disaster assistance for earthquake damage that your insurance company cannot cover that occurs as a result of a declared disaster.
In any case, FEMA makes it clear that your insurance company should always be your first content for support after a disaster.
Is Earthquake Insurance Tax Deductible?
No, because most people use their home only for personal purposes. The IRS views items such as homeowners insurance, the cost of utilities, and specific insurances such as hazard coverage or earthquake insurance as non-deductible payments as far as taxes are concerned.
There are exceptions to the rule, however. For example, you may be able to deduct your losses that occurred due to a federally declared disaster. In this case, you can only write off whatever was not reimbursed to you by your insurer.
Other circumstances where it might be tax-deductible include a home office or rental property.
Covering Your Bases
Earthquakes are unpredictable, and they can be incredibly damaging. Many homeowners shy away from adding on earthquake endorsements to their home policy due to the concern for the cost of it, but the benefits far outweigh the cost of the risk.
If you live in an area prone to seismic activity, do yourself a favor and call us for quality earthquake insurance.
If your insurance company is not providing you coverage, don't fret. Beacon Point Insurance can point you in the right direction and get you set up with an insurance company that specializes in earthquake coverage.