Before deciding if earthquake insurance is right for you, be sure to weigh the pros and cons.
Pro: In the Event of an Earthquake You'll Be Covered
Virtually no homeowners' policies cover earthquakes. The obvious benefit to having earthquake insurance is that in the event of an earthquake, you'd be protected against losses and property damage. This is especially important if you have accrued a large amount of equity in your home.
This is, essentially, the only benefit to purchasing supplemental earthquake insurance. The same can not be said for the cons.
Con: Earthquake Insurance is Expensive So It'll Cost You
Earthquake insurance is expensive. Even in the San Francisco Bay Area, where earthquakes are most prevalent, only about 12 percent of the population are covered. The most common reason for opting out is prohibitive costs.
In quake-prone areas, expect earthquake coverage to cost twice as much as traditional homeowners coverage. Rates will often be lower for brand-new structures that are up to code in earthquake-sensitive areas or for older structures whose owners have made improvements to earthquake readiness.
Con: There are Coverage Gaps in Earthquake Insurance
Many earthquake insurance policies don't cover major expenses that are indirectly related to the cost of the earthquake. Demolition costs, mortgage after incident costs, or reallocation costs can all fall squarely on your shoulders even if you purchased a policy. This means that aside from paying your own way through demolition and removal, you may have to continue paying your mortgage and whatever it costs for you to stay in a hotel or rent an apartment until you get back on your feet.
Con: You Will Pay More Out of Pocket with the High Deductible
The deductible, which is the amount of money you'll have to pay out of pocket before your insurer even begins to contribute, is usually about 15 percent. In the pricey but quake-prone Bay Area, the average price of a home is close to $700,000. That would mean the average homeowner with the average policy would have to come up with about $100,000 before getting a dime from their policy.
Con: Even Considering the Most Dire Predictions Earthquakes Are Still Rare
Although they're terrifyingly unpredictable and have the potential to be enormously destructive, earthquakes - unlike the hurricanes and tornadoes that are almost guaranteed to hit certain parts of the country every year - major earthquakes hit the United States every once in a great while.
Even the most dire predictions speculate that the chance of a major earthquake hitting the most vulnerable portions of America in the next half a century is only 50 percent. That's a coin toss. A coin toss that you'll pay for one of the most expensive insurance products you can buy without ever benefiting.
Earthquakes have the potential to destroy your entire home. Not only can the shifting Earth reduce even the most well-built structures to rubble, but lingering dangers such as fires, floods, electrical dangers, and aftershocks plague the victims of virtually all major earthquakes.
Earthquake insurance can protect you against some of this. It is costly and imperfect, but in the most vulnerable areas, it may provide peace of mind to shaky nerves.