Agent's Perspective - Purchasing Earthquake Insurance: Myths vs. Fact


Nearly 90% of California homeowners do not have earthquake insurance, and barely 1 out of 10 commercial buildings is insured for quake, according to the California Department of Insurance. 
75% of the nation’s earthquake risk is right here in California. Scientists say we’re going to get hit again – and hard. Indeed, seismologists say the state is well overdue for another major quake.

A recent scenario by the U.S. Geological Survey estimates that if a major earthquake of magnitude 7.0 occurred on the Hayward Fault on the east side of the San Francisco Bay it could destroy 50,000 single-family homes from subsequent fires and shaking.

Good news, if there is any, is that premiums for earthquake insurance have continued to fall over time. For example, the publicly managed California Earthquake Authority (CEA) has dramatically lowered rates by more than 50% since the company’s inception, while substantially increasing coverage and flexibility. Consumers can now decide on the deductible they want, from as low as 5% up to 25%. Homeowners who have had a seismic upgrade to their foundation, a retrofit, are eligible for up to a 20% discount. 

While multiple excuses abound for not purchasing earthquake insurance, the following are among the most common reasons sighted: 

“I’ll just hand over the keys to the bank” 
Homeowner’s who let their banks foreclose on earthquake devastated homes will not only lose all of their equity, but also put their credit rating at risk which could make it difficult or impossible to borrow money for years to come. 

“My home survived the 1989 Loma Prieta earthquake” 
For anyone that knows anything aboutearthquakes this is the silliest of arguments.

“My home is bolted to the foundation”  
This is a better argument than most, however, no amount of retrofitting can protect against a truly devastating shaker. Bolting seems to work best for 1 story frame homes; homes that are 2 or more stories or that have big picture windows or other large gaps in the frames are likely to suffer more damage even if bolted. Of course, all the bolting in the world won’t help if the soil you home is subject to liquefaction. 

“I will just apply for government assistance/FEMA”
The common assumption is that a high impact event will be covered by the Federal  Government. Not so! Assistance to individuals and households is only intended to get people back in their homes. FEMA’s maximum grant to homeowners is only $33,000. Applicants should remember that FEMA’s low interest loans won’t cover their existing loans by a penny and must be paid back. Servicing double mortgage payments could be financially devastating. 

“I’m on bedrock” 
This is one of the most widespread rationalizations for not purchasing earthquake insurance. Even homes on bedrock can sustain severe structural damage depending on the magnitude and duration of a powerful quake. Homeowner’s should be more concerned with their homes proximity to major fault lines such as the San Andreas, Hayward, and Calaveras faults (which is most of the SF Bay Area). 

If you are unsure if your home is adequately retrofitted to withstand a serious seismic event a recommended resource to contact for an evaluation is Cal-Quake www.cal-quake.com.