Earthquake Insurance

Basic homeowners policies DO NOT cover earthquake damage. You may typically purchase earthquake insurance from the same company that issued your homeowners policy. Earthquake insurance is usually not required by the lender when purchasing or refinancing your home. Earthquake insurance is considered catastrophic coverage and most policies carry a very high deductible--often up to 10 percent or more of the home value. The deductible represents the amount you must pay before your policy begins to benefit you.

Geographic areas are graded on a scale from one to five. Insurance rates may vary depending on your particular location. Owners of wooden homes will usually get better rates than owner of brick homes since wood better withstands quake stress compared to brick. Depending on where you live, you may be able to get an earthquake endorsement to your homeowner's policy. Contact your agent or state insurance department for details.

It's important to determine your rights for filing claims prior to purchasing a policy. Find out the time period allowed for filing a claim following a quake. California's Northridge quake occurred in early 1994, yet claims continued to be filed many years afterwards for two reasons. First, in some cases earthquake damage wasn't immediately apparent. Second, as repair costs increased over time, many homeowners exceeded their deductibles and became eligible to file a claim.

Residents in the states of California, Missouri and Washington are the leading purchasers of earthquake insurance. Currently, the majority of earthquake policies in California are sold through the California Earthquake Authority (CEA). The CEA is a privately funded, publicly managed consortium of insurance companies. The CEA was created after the Northridge quake in response to insurance companies discontinuing the sale of homeowners and earthquake insurance for fear of experiencing further losses. The CEA's mini-policy is generally regarded as the industry's standard earthquake policy, and similar mini-policies are sold by insurance companies not participating in the CEA.