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What is Earthquake Insurance?

Earthquake insurance is a type of property insurance that covers damage to your home in the event of an earthquake. It may also cover damage to your belongings and loss of use. In most states, earthquake insurance can be purchased as an add-on to a homeowner’s policy or as a separate stand-alone policy. Standard homeowner’s policies place earthquakes under an “acts of God” clause and will not cover damage caused by one unless an earthquake policy is purchased.

Why Earthquake Insurance Coverage Is Necessary

Many people recognize the West Coast as an active earthquake zone, but at least 42 states are at risk for seismic activity, including the Midwest. In fact, Oklahoma had more earthquakes than California did in 2014.

The New Madrid fault line is another seismic hotspot that covers the area where Missouri, Kentucky, Arkansas, Illinois and Tennessee converge. While no major activity has occurred since 1811, that quake was powerful enough to cause the Mississippi River to run backwards. Lack of activity is no indication that an area will remain stable. The more infrequently quakes occur, the more likely they are to be damaging.

Earthquake Insurance Coverage

There are three areas of coverage addressed in an earthquake insurance policy:

  • Dwelling,
  • Personal Property, and
  • Loss of Use.

Dwelling coverage pays for structural repairs or rebuilding when a home is damaged by seismic activity, and makes up the bulk of the policy or payout.

Personal property coverage replaces personal belongings, such as a big screen TV that is damaged in a quake. However, these clauses are typically limited to under $5,000 unless additional coverage is purchased. Artwork, jewelry, furs and fine china are usually exempt from coverage and must be insured under a separate policy.

Loss of use coverage reimburses the policy holder for the cost of a hotel or rental while they are waiting to buy a new home or to repair the existing one. It is limited by the amount of coverage purchased, and the homeowner is expected to have repairs or a new purchase made within a reasonable time frame.

Earthquake insurance coverage does not include secondary damage caused by quakes. For example, if an earthquake caused flooding from a nearby body of water, the water damage wouldn’t be covered by the earthquake policy. Separate flood insurance is needed. Damage caused by a fire that happened during a quake may not be covered either, but might be covered under a standard homeowner’s policy.

Costs and Deductibles

Earthquake insurance premiums vary according to activity for each region. The same level of coverage may cost less than $500 in the Midwest, and over $7,000 in active seismic areas like California and the West Coast.

Insurance policies nearly always have deductibles –an amount the homeowner is expected to take care of before insurance pays out on a claim. In many cases, the deductible is a flat dollar amount. For earthquake policies, the deductible is a percentage of the claim coverage. Earthquake coverage is usually available up to the same amount covered by a homeowner policy, and the deductible typically falls in the 10 to 20 percent range.

This means that for a policy with $150,000 of coverage, the deductible can range from $15,000 to $30,000. Although these high deductibles mean that damage must be comprehensive before a policy will pay out, it can be worth the peace of mind it provides for those living near major fault lines. Standard homeowner policies pay out very little, if anything, in the event of an earthquake. It is a good idea to set aside an emergency fund to help cover deductible costs.

Lower Risks to Save Money

The state of California offers lower rates for homeowners who retrofit their homes to better withstand earthquakes. Take these steps to minimize earthquake damage:

  • Bolt your home to the foundation.
  • Reinforce chimneys and bolt water heaters to the wall.
  • Install automatic shut-off valves for gas lines.
  • Strengthen “cripple walls” that conceal crawl spaces with plywood.

These improvements can help your home weather a quake and may qualify you for better earthquake insurance terms.

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