I've had a lot of questions this month about earthquake coverage! Maybe we are all beginning to feel a little bit vulnerable about the wrath of Mother Nature! So.... I thought it would be a good idea to point out some misconceptions about earthquake coverage, and give a little bit of education.
What does earthquake coverage do?
Too many people are surprised about the coverage they thought they had with catastrophic policies (earthquake, flood, tornado, etc.) These types of polices do not work like a regular homeowners policy.
With a regular homeowners policy, there may be 1 or even 100 houses that burn in a fire. That is a small amount for insurance companies to absorb and repair. In a catastrophic event, there may be 1000s or tens of 1,000s of properties damaged. That's why regular insurance companies no longer have this type of catastrophic coverage; instead the coverage is obtained through state or federal entities like the California Earthquake Authority. These are not-for-profit entities.
Regular homeowners coverage is designed to "make you whole," to replace your home if it burns to the ground. Catastrophic coverage is not designed to "make you whole." It is designed to help millions of people be able to put a roof back over their head, so they are not permanently living in shelters or hotels.
How does the deductible work?
With the CEA, there is a choice of 5%, 10%, 15%, 20%, or 25% deductible. The deductible is not an out of pocket expense. It works like this:
Let's say you have a house that would cost $300,000 to rebuild (according to your homeowner's policy if it burned down.) And you choose a 20% deductible for an earthquake policy - which would be $60,000. In the event of an earthquake where your house is flattened, that $60,000 would be deducted from the $300,000, leaving you with $240,000 to rebuild. It won't be exactly the house you had before, but you will have a roof over your head, even if it doesn't have all the bells and whistles.
Let's say you have the same $300,000 house with the same 20% deductible, but your house isn't flattened. It has only $100,000 of damage (according to the claims adjusters and their fancy damage calculators.) The $60,000 would be subtracted from the $100,000, and you would have $40,000 for repairs.
How can I get more information?
The California Earthquake Authority website is really easy to understand!
At the bottom of the page you'll find links that describe the difference between a Homeowners Choice and a Standard Homeowners policy, along with Optional Coverage for an Exterior Masonry Veneer (if you have one,) and Optional Coverage for Breakables.
How Much Will It Cost?
At the top of the CEA page, you'll find a link that says Get An Estimate. This will easily walk you through the description of your home, so you can determine the approximate premium. If you need to know the cost to rebuild your home, look at your homeowner’s policy. This is the rebuilding value that will be used in the CEA policy.
I hope you have found this educational and helpful. My agency mission is:
We help customers manage their everyday risks to protect them against life's unexpected harms. Please call if you have questions 909-793-3243.