Earthquake Insurance:
Geologists have warned that the “big one” could
strike Western Washington at any time. The reason why about
five out of six homeowners do not purchase this coverage is due to
increasing premiums and deductibles. Earthquake insurance
is for the truly catastrophic quake that could cause your home to “walk” off
its foundation. Some insurance companies are removing earthquake
coverage from existing policies and refusing to issue any
new quake coverage; and some companies have stripped their
coverage to the point of making their product unattractive to the
informed consumer. EHL can help you understand the risk factors
that make quake damage more or less likely for your property; and we
have an array of companies willing to issue the coverage
in an assortment of terms.
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| Loma Prieta earthquake in the San Francisco Bay area in 1989. This house shifted off its foundation. Photo from: http://earthquake.usgs.gov |
UPDATE April 2010 - Are you Covered in an Earthquake:
Recent events in Haiti and Chile have sparked a lot of interest in insurance for natural disasters. Most homeowners policies do not provide coverage for earthquake, landslide or flood. Where available, specific coverage for these three "perils" can be secured via a natural disaster policy that lays alongside your homeowners policy. For clients who want to insure their home against earthquake, but not flood or landslide, there are two ways this can be potentially accomplished. Some companies provide earthquake coverage as an "endorsement" or extension of the homeowners policy. If not, a separate earthquake policy is required.
Regardless of how quake coverage is obtained, high deductibles are common, ranging from 5% to 25% of the insured value of the home. If the quake is not sufficiently severe to cause the house to come off the foundation, the deductible will likely not be pierced, meaning there would be no coverage for the partial damage. However, if the quake is so severe that the house does come off the foundation, we should expect devastation to be widespread throughout the region. Historically, such a sudden increase in demand causes the cost of building material and labor; and the time required to rebuild; to all increase dramatically. This can potentially leave homeowners with insufficient coverage to rebuild and with too little coverage for additional living expense while they are out of their home.
Fireman's Fund Insurance Company (FFIC) insures homes with a reproduction cost of at least $500,000, and in many cases will provide earthquake coverage as an addendum to the homeowners policy. The coverage amount is based on the expected cost of replacing your home, should your’s be the only one destroyed in an event. However, should a catastrophic event cause reproduction cost to exceed the amount of insurance, Fireman Fund's policy has no limit on the amount of coverage to rebuild the home, and there is no time limit for additional living expense. FFIC currently offers deductibles at 5, 10, 15, 20 & 25% of the insured value of the home.
Allied Insurance is an excellent choice for homes under $750,000. Their minimum quake deductible is 15%. Reproduction caps are written either at 125% or 150% of dwelling value , (meaning a home insured for $600,000, would have a cap of either $750,000 or $900,000). Additional living expense expires one year after the date of loss. Allied typically does not write quake insurance for homes on steep hillsides, or for homes with more than two levels.
GeoVera writes “stand alone” policies. GeoVera does not allow input on insurable values. They set the coverage amount based on tax parcel data. If we have a home insured for $600,000, they may issue the policy between $700,000 and $1 mil, but are doing so on a "combined limits" basis. In addition to insuring the house, the total limit also provides protection for any other structures on the premises, a personal property, loss of use, or additional living expense. While the combined limit provides more coverage, it also inflates the deductible. (A 10% deductible on a $900,000 GeoVera policy, will be equivalent to a 15% deductible on a $600,000 policy written through another company.)
The Safeco Earthquake Policy also has a hard cap of the coverage amount on the companion Safeco homeowners policy, not to exceed $1 mil. The minimum deductible for new policies is 20% of the insured home value. The Safeco policy is written on a “functional replacement cost” basis. Homes with custom features, such as exotic hardwood floors and cabinets, granite counters, etc., will only be compensated for modest carpet, vinyl floors, and very basic laminate counters, etc. Custom features would be an out of pocket expense in addition to the deductible. Personal property, additional living expense and land stabilization coverages are severely limited to $10,000; $5,000 and $5,000 respectively.
American Excess and Surplus (AES) provides an alternative stand alone policy option for clients with their homeowners policies with companies other than Allied or Fireman's Fund. Dwelling coverage with AES is set based on the replacement cost of the dwelling calculated by your home insurance carrier, and like Safeco, it is capped at this amount. However, AES provides more of a traditional replacement cost coverage than a "functional" replacement cost in that it will pay to replace your nice hardwood floors, cherry cabinets, granite counter tops, even the decorative rock exterior on your home as long as the cost to do so is within your policy coverage limit. Additional Living Expenses is very limited at $25,000 and Personal Property coverage is limited to $75,000.
The above descriptions are believed
accurate as of April 2010, but are
intended as a brief summary only.
Please consult actual policy
language for a complete
rendering of intended coverage.
