Some financial planners suggest the latter. They say that the majority of California homeowners are opting out after weighing the relatively remote chance of a temblor destroying their homes against the high cost of today's earthquake coverage.
But we don't buy insurance coverage just to protect us from likely occurrences. We get insurance to guard against unlikely and financially devastating events.
That's why we buy life insurance: Most of us don't expect our families to need it. Not having coverage, however, could mean a financial nightmare for our families if the unlikely should happen and a breadwinner dies prematurely.
Of course, some people wouldn't buy, say, auto liability coverage at all if it wasn't required by law. Some would even forgo homeowners insurance if their mortgage lenders didn't force them to buy it. Some people are more than willing to roll the dice--but they should be clear about the real stakes.
In the case of quake insurance, people who decided long ago to do without it might want to revisit the issue--especially in light of changes in the last year that have made coverage more appealing.
Earthquake insurance coverage changed radically after the 1994 Northridge temblor.
Until then, companies that wrote homeowners insurance in the state were also required to offer earthquake coverage. After Northridge, most insurers refused to write either, saying the $12.5 billion in insurance claims from the quake was far higher than expected--higher, in fact, than the total of all earthquake insurance premiums ever collected in California.
The state Legislature eventually responded by created the California Earthquake Authority, a state-run insurance pool.
The first policies were bare bones. Instead of 5% or 10% deductibles, the CEA policies required homeowners to pay 15%. That meant that a homeowner insured for $300,000 had to pay the first $45,000 for repairs before coverage kicked in. The policies didn't cover landscaping, pools or anything else outside the actual home.
Inside the home, earthquake coverage was spartan, covering just $5,000 of contents. Everything else that toppled over, wrenched apart or fell out of cabinets had to be replaced by the homeowner.
Oh, and you probably would have had to move in with relatives; unlike previous earthquake insurance policies, which covered rent and other living expenses for six months to a year while your home was being rebuilt, CEA's coverage paid just $1,500--which just about covered a month at a Motel 6.
To make matters worse, the coverage was often more expensive--sometimes much more expensive--than the more comprehensive private earthquake policies it replaced. CEA's enabling legislation required the authority to base its rates on the latest scientific advancements in predicting earth movements, and the scientists discovered that some areas once presumed safe--portions of San Bernardino and Riverside, for example--were actually riskier than previously thought.
But the state finally responded to homeowners' howls by offering more quake insurance options through CEA, including lower deductibles and greater contents coverage, for somewhat higher premiums.
Two private companies, Pacific Select and GeoVera (now both owned by St. Paul Cos.), also began to offer more comprehensive earthquake policies.
CEA now says demand for its enhanced policies is greater than anticipated: Nearly 34,000 homeowners have purchased the additional coverage in the first year it was been available, compared with 917,000 who have the bare-bones CEA policies.
That still leaves nearly five out of six homeowners with no quake coverage, however.
Some people are wealthy enough to be able to walk away from the financial investment of a home, of course, and others have so little equity at stake that protecting it from earthquake damage may not make much sense.
But if your reasons for not having earthquake insurance include any of the following, you may wish to rethink your stance: