Is quake insurance worth the cost?
Japan’s massive earthquake has created a surge of interest in quake insurance in a place more than 5,000 miles away — California.
“Earthquakes are clearly on the top of people’s minds,” said Glenn Pomeroy, chief executive of the California Earthquake Authority, a nonprofit group designed to make quake coverage available to any Californian who wants it.
“The images coming out of Japan are surreal, and the news just keeps getting worse and worse. This has riveted people’s attention like no event I can remember.”
Only about 12% of Californians with home insurance have quake coverage. And the percentage of people who buy quake insurance in other states — including those with active faults — is far lower.
Should you buy quake coverage?
There’s no clear answer. The problem is that quake coverage is costly and limited. Experts say that it takes careful analysis to decide whether the expense is worth the potential benefits.
Although coverage varies state by state — and sometimes from one insurer to the next — it’s important to look at what the coverage costs, covers and excludes. Let’s take a close look at California’s standard earthquake policies to see how dramatically this coverage differs from standard home insurance.
Cost
The only thing you can say for sure about earthquake coverage is that it’s expensive.
But the price can vary depending on a number of factors. Quake coverage is generally priced at the higher end for older homes, homes made of masonry or brick, homes that have multiple stories, and homes that sit on sandy alluvial soil that’s less stable than clay or rock.
Consider the costs for a policy overseen by the California Earthquake Authority. A $500,000 policy for a one-story home in Beverly Hills would cost $648 if the home had been recently constructed of wood. But the same policy would cost more than three times as much — $1,962 — if the home was constructed of masonry or brick.
There’s an online calculator on the California Earthquake Authority site (www.earthquakeauthority.com) that can be used to help estimate the cost of a policy, depending on various factors.
Deductibles
A fire or home insurance policy usually sets the deductible at a dollar amount. But the deductible on a quake policy is usually by percentage — typically 10% or 15% of the structure’s replacement cost. So, if you buy a $500,000 policy, it would not begin paying until your covered losses exceeded $50,000 for a 10% deductible policy or $75,000 on a 15% deductible.
Coverage
The purpose of most earthquake coverage is to get a roof over your head, Pomeroy said. It isn’t aimed at getting your home back to the same shape it was in before the disaster.
Although the structure of a home and attached garage would generally be covered, after deductible, the walkways, driveways, decks and patios would be covered only to the extent that they provide safe passage into or out of your home. Swimming pools and landscaping would not be covered.
Decorative brick and masonry would not be covered. The policy would pay to button up the structure with stucco or wood to keep out the cold, but you would be on your own if you wanted to replace the decorative stonework that made your home more elegant.
Likewise, the policy would pay to replace a stained-glass window in the bathroom or foyer door, but only with an ordinary window.
If your home is made of plaster, the policy would repair the plaster on the outside, but it would pay only for drywall for the inside walls. The policy also excludes coverage for detached structures, such as guesthouses and pool houses. If your chimney falls down, the policy would pay $5,000 to repair it. If it costs more, the additional cost is yours alone.
The contents of your home are covered to the limits of your policy, but again, there are numerous exclusions — such as china and crystal and many other items that are likely to break.
“What we try to do is make sure that people will have shelter,” Pomeroy said, “but the policy is not the Cadillac of all Cadillacs.”
