If you're like most Californians – 83% of them, to be exact – you live on the edge of a very precarious precipice. Why? Because you don’t have earthquake insurance.
After the 6.3 quake in the Gulf of California on July 3rd, 2009, many people predicted a large quake in Southern California within ninety days. While that didn’t happen, significant activity along any fault means a greater likelihood of increased activity elsewhere on that fault line.
“Ah,” you’re thinking, “but the chances of my house being damaged or destroyed by an earthquake are fairly slim.”
That may be so, but as Los Angeles Times staff writer Liz Pulliam Weston reminded us in a recent article, “…we don’t buy insurance coverage just to protect us from likely occurrences. We get insurance to guard against unlikely and financially devastating events.”
Despite this, there’s no denying that the decision to buy earthquake insurance (or not) is a personal, financial choice. However, if you believe you don’t need such coverage, consider the following points:
- Deductibles are not as high as they once were: While old-school earthquake policies came with 15% deductibles, modern coverage comes with deductibles of 10%, and sometimes lower (though there is a jump in premium price). If that seems too expensive, consider that you essentially have a 100% deductible if you live in an earthquake-prone region and don’t have insurance.
- FEMA money isn’t free: While it’s true that FEMA does offer emergency rebuilding loans, that money isn’t a gift. You have to pay it back, and it does go on your credit report and balance sheet, offsetting any equity you might have. In addition, FEMA loans come with strict eligibility rules. Don’t count on government funds you may not qualify for.
- Earthquake bolts don’t work on every home: It’s great if your home is bolted to its foundation, but you should bear in mind that if a quake is bad enough, having those bolts may not help. As well, studies have shown that while earthquake bolts provide a lot of protection for single-story wood-frame houses, larger, multi-story homes, or those with large picture windows (or other significant gaps in the framing) will still sustain significant damage.
- Foreclosure isn't really a viable option: If you live without earthquake insurance, and plan to just hand over your keys if devastating damage occurs, consider this: for most of us, our homes are the largest financial asset we have. Going into foreclosure means you lose all your equity, as well as kill your credit rating, making it virtually impossible to get a new loan. In this economy, where credit is hard to come by already, is that really a risk you want to take?
Once you've made the decision to purchase insurance, there are a few things you need to look for in a policy. Specifically, you'll want to ensure that your policy will provide living expenses in case your home becomes uninhabitable, as well as money to replace your home, including costs for engineering and restructuring to comply with building codes.
The “big one” may be just around the corner, or it may be years away. Wouldn’t you rather be protected?