The California Earthquake Authority sold 9,000 earthquake policies in January of 2018. That’s more than the average number of policies sold for an entire year from 2005 – 2015 and on track to exceed last year’s record 90,707.
What’s causing this big increase? And does buying earthquake insurance make sense for you?
Living in the Bay Area, earthquakes are a part of our everyday life. It’s easy to become cavalier about the risk of a major event like the 1989 Loma Prieta earthquake.
After all, in the last 365 days, the Bay Area has had 385 minor earthquakes. There hasn’t been a major event since the 1989 Loma Prieta quake — almost 30 years ago.
But what happens when you’re suddenly thrown from your bed and your bedroom furniture crashes to the floor around you?
Your refrigerator and kitchen cabinet doors break their earthquake latches and fly open, leaving a knee-deep mess of broken glass and cooking oil.
The lights are out and you wonder if that was the big shock — or if there’s a stronger one to come?
As you evacuate your home, you wonder if you’re ever going to get back to normal again. There’s so much damage.
According to the United States Geological Survey, there’s a 63% chance the San Francisco area will experience a 7.0 magnitude or greater earthquake in the next 30 years.
To put that into perspective, that’s more than double the chance of having a house fire during the same period of time.
It could happen 25 years from now. Or in 25 minutes.
The risk is real. So why wouldn’t you buy earthquake insurance?
Well, here are a few of the reasons I’ve heard recently.
Federal Assistance
Many people believe that the federal government will respond if there’s a big earthquake.
And they will — but not to the extent you need them to.
Did you know FEMA grants after a catastrophe are limited to $33,300? How much of your property will that replace? Not much!
Even that paltry amount isn’t guaranteed — it depends on the extent of the total damage in the area and other catastrophes happening elsewhere in the country.
Sometimes, FEMA only offers loans that must be repaid. Who wants more debt after a catastrophe?
The truth is, you could suffer major damage to your property and get no help from the federal government.
Depending on the federal government isn’t a good option.
High Deductibles
One of the biggest complaints about earthquake insurance is that the deductibles are too high.
In the past, this has certainly been the case. When the California Earthquake Authority started selling earthquake insurance, the deductible — what you’re responsible for before the insurance pays — was 15% of the policy.
That means if you had a $300,000 policy, the first $45,000 of damages weren’t covered. Ouch.
There is some good news here — the CEA now offers deductibles as low as 5%.
These lower deductible options are one of the reasons more of your neighbors are buying earthquake insurance.
If high deductibles have kept you from buying earthquake insurance, now is a good time to give it another look.
High Cost
If you’ve ever considered buying earthquake insurance, you know the price could be steep for a very basic policy. Coupled with the high deductibles, it’s not a surprise so few people purchased earthquake coverage.
There’s some good news here too — the cost of earthquake insurance has actually gone down! In addition, you can now get better coverage than before.
Now, you can cover up to $200,000 of contents in your home, get as much as $100,000 to cover your living expenses while your home is being repaired, and even get breakage coverage for your crystal and other valuables.
There are many more options and price levels which make it easier to find the option that suits you best.
Earthquake Retrofitting
Perhaps you’ve taken steps to protect your home from earthquakes or you have a newer home, built to withstand moderate earthquakes.
That’s good — but it’s not enough. Unfortunately, you can’t fully protect your home from damage, especially in the event of a large earthquake.
Plus, as we saw in the marina district in 1989, liquefaction can swallow a home in minutes.
While stronger buildings are always safer, they aren’t immune to damage. And they won’t protect your contents from being tossed around and destroyed.
Your Best Option
I’m encouraged to see so many Californians recognizing the need for earthquake insurance and the CEA implementing changes that make earthquake insurance more affordable.
But does buying earthquake insurance make sense for you?
Just like every earthquake is different, I know every one of my customers is unique.
That’s why I encourage you to call our office and find out what options are best for you. We’re happy to help you determine how to best protect you and your family from earthquake losses.
California, especially the Bay Area, is a wonderful place to live. When you’re prepared for the unexpected, you can relax and enjoy all our special part of the world has to offer. Isn’t that what we all want?
