“If you know you’re directly in a danger zone and you can afford the premiums, get that earthquake insurance,” he says.
Looking for answers to earthquake insurance questions? I’ll cover the essentials in this article, including:
What Is Earthquake Insurance?
Earthquake insurance provides financial protection against damages and losses caused by earthquakes. Generally, standard homeowners insurance policies don’t cover seismic activity. So, this specialized coverage can help provide financial relief after an earthquake.
There are two different types of earthquake insurance. The first is traditional or conventional earthquake insurance. This type of insurance generally works like any other standard insurance policy. In the event of an earthquake, you'll make a claim. Then your payout will be based on a claims adjustment process after your losses are assessed.
Some companies also offer parametric earthquake insurance. This type of coverage allows the insurer to use parameters — or set criteria — separate of an individual policyholder's personal loss to determine a payout. Instead of being paid for your specific losses, an insurer will pay based on preset event parameters. For example, you might get paid a predetermined amount based on an earthquake's magnitude. This type of coverage allows for quicker payouts, but might not be the best protection after a significant loss.
Who Needs Earthquake Insurance?
Wondering if you need earthquake insurance? Clark says:
"If you live in an area that's not had a brutal earthquake — but you're on a fault line and it's a matter of when, not if — earthquake insurance is something you should have."
According to the Federal Emergency Management Agency (FEMA), the top three markets for earthquake insurance include:
- California
- Missouri
- Washington
Unfortunately, the majority of people who live in areas prone to earthquakes don't have earthquake insurance. Take California: FEMA reports that while the state experiences 90% of the country's earthquakes, just 10% of residents have earthquake insurance.
Check out FEMA's Earthquake National Risk Index to learn more about what areas are high risk.
What Does Earthquake Insurance Cover?
Like homeowners insurance, earthquake insurance typically offers different coverages for policyholders. This can include:
- Dwelling: coverage for the physical structure of your home (ex: walls, foundation, etc.)
- Other Structures: coverage for structures that are not attached to your home (ex: fence, shed, etc.)
- Personal Property: coverage for your personal belongings (ex: furniture, clothing, etc.)
- Loss of Use/Additional Living Expenses: coverage for the cost of living if you're unable to use your home (ex: temporary housing, food, etc.)
Your coverage limits will depend on where you live, who you insure with and how much you can pay for coverage. If you owe money on your home, then your lender might also have a minimum coverage requirement.
What Does Earthquake Insurance Not Cover?
While earthquake insurance can offer peace of mind, it doesn’t protect you against everything. Here are three important things that are typically excluded from earthquake insurance:
- Car damage
- Fire damage
- Flood damage
Fortunately, each of the things on this list is protected by other types of insurance. For example, if an earthquake leads to fire damage then your homeowners insurance policy will likely step in and pick up the tab. Your car insurance will most likely cover damages to your vehicle after an earthquake. And if you have flood insurance, then that's likely what'll protect you from earthquake-related flooding.
There may be other exclusions like swimming pools, water supply systems (ex: sprinklers or wells), and underground systems (ex: cables or drains). And as with any other type of insurance, earthquake insurance also doesn’t cover pre-existing damages or damages that result from wear and tear or neglect.
Where Can I Buy Earthquake Insurance?
FEMA reports that “Many insurance companies stopped insuring earthquakes in the 1990s after projections suggested that a major earthquake could potentially bankrupt them.” But finding earthquake insurance doesn’t have to be complicated.
California residents have the California Earthquake Authority (CEA), which insures most homes in the state. The California Department of Insurance can help you get started with figuring out what you need.
For Washington residents, the Office of the Insurance Commissioner has an overview on earthquake insurance along with a few resources.
And if you live in Missouri, the Missouri Department of Insurance has put together an earthquake shopping guide to help residents get started. This guide includes lists of insurance companies either offering, not offering, or offering renewal-only coverage for earthquakes in the state.
For everyone else, start by checking with your state's department of insurance. They can let you know about state-specific resources. But don't stop there. When it comes to insurance, we always recommend shopping around. Clark says:
“Talk to your current insurer, talk to others, shop the market and see what the best deal is on earthquake insurance.”
Insure Against Earthquakes is another place to go for earthquake-related resources.
Final Thoughts
It might be tempting to write earthquake insurance off as an unnecessary expense. But major earthquakes are unpredictable. If you live in an area with seismic activity, you could be taking a big risk.
An emergency fund is a great way to prepare. But unless your emergency fund can cover the costs of rebuilding your home, you should consider earthquake insurance.
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