We’d like to believe that disasters caused by earthquakes are rare. However, as we have seen with the recent natural disasters in the United States and abroad, the impact can be financially devastating if you are not prepared for the unthinkable to happen. If you were to fall victim to an earthquake, could you pay for the damages out-of-pocket? Will your homeowners insurance provide adequate coverage? Could any of us depend on the government for assistance?
Standard homeowners insurance generally does not cover damage directly caused by earthquakes. Federal disaster assistance is usually in the form of loans or grants and is only available if the damage is widespread and very serious, and the affected area is declared a disaster area by the Federal Emergency Management Agency (FEMA). So what should you do? First, review your current insurance with your insurance professional to determine what is, and especially what isn’t, covered. Assuming you aren’t covered for damage caused by an earthquake, consider earthquake insurance, even if you don’t live in an area prone to recurrent disasters of this type.
If you’re deciding whether to buy earthquake insurance (or both), consider the following questions:
Have you assessed the potential cost of repairs?
Do you have sufficient resources to repair, replace, or rebuild?
Can you minimize potential losses by fortifying your property and securing your personal belongings?
Most homeowners policies generally have very limited coverage for earthquake damage–excluding direct loss from earth movement but covering loss by a subsequent fire, explosion, breakage of glass, or theft. As a result, you may want to purchase earthquake insurance.
Typically, earthquake insurance covers damage to your home and your possessions. Most policies also cover costs incurred to minimize further damage after the earthquake, and costs for additional living expenses. The cost of earthquake insurance varies, depending on the scope of coverage, type of structure, and your location (e.g., in an earthquake zone). Coverage can be purchased as an endorsement to your existing homeowners insurance, or as a separate policy.
Whether you should buy earthquake insurance may depend on a number of factors that include:
The frequency and severity of earthquakes in your area
The likelihood an earthquake would cause considerable damage to your home
Whether your home is constructed to withstand an earthquake of moderate strength
Whether you could absorb the cost of replacing your residential and personal property
If you do buy earthquake insurance, you’ll probably want to buy enough to cover the costs of rebuilding your home and replacing damaged personal property. That means that the amount of insurance you buy generally should be based on replacement or reconstruction costs and not the current market value of your home and possessions. Also, you may not notice some damages to your home or possessions immediately after an earthquake, so be sure the policy you buy gives you adequate time to discover damages and file a claim.