Earthquake Insurance: Is It Worth the Price?

Friday’s tremor has again raised questions about whether earthquake insurance is a worthwhile investment. Coverage is expensive and perhaps unnecessary for some homeowners, but others may find it very useful.

Here are some questions and answers about earthquake insurance:

What is the cost?

Annual premiums for earthquake coverage typically cost between $1.50 and $2 for each $1,000 worth of coverage, with a 10% deductible applied separately to the structure and internal contents. For a $200,000 home, that could amount to a $400 premium plus a huge $20,000 deductible.

But you could pay twice that much if you live in a high-risk structure such as an unreinforced masonry or two-story home, or in unstable areas such as near a fault line, on a hillside or on top of sandy soils.

What does an earthquake policy cover?

Most policies cover damage that might accompany a quake, such as that caused by fire, water or broken windows. But if your insurance adjuster determines that the earthquake directly caused, say, a fire, then fire damage will be subject to the earthquake policy’s overall 10% deductible.

This year, many insurers began offering additional coverage that--in the event of a quake--provides extra money to meet the cost of upgrading a damaged older home to newer building code standards. To obtain the coverage, however, you must first retrofit your house with anchor sill bolts to secure it to its foundation.

Closely examine any earthquake policy because some exclude many of the things most likely to be damaged in a quake, such as chimneys, brick facades and concrete walls.

What should I do to speed the processing of any claim I might file?

Insurance experts suggest that you photograph or videotape your undamaged house and store the film or tape in a safe place so you’ll have a record of your home’s contents and condition before any tremor. If an earthquake strikes, photograph or videotape any damage. That way you can tidy up and get on with daily living and still prove your claim.

What about the state’s earthquake insurance program?

A new state earthquake insurance program that was to have started Monday would have provided up to $15,000 in earthquake coverage for a yearly cost of between $12 and $60. The Legislature passed the law in the aftermath of the 1989 Loma Prieta quake in the San Francisco Bay Area, hoping that the plan would bridge the coverage gap caused by high deductibles on private earthquake insurance.

But state Insurance Commissioner John Garamendi has been pushing to delay the start of the program until next year because the state is still not ready to operate it. Late Friday the Assembly was expected to take up an emergency bill that would postpone the program until Jan. 1.

Given the high cost, spotty coverage and government concern, do I need earthquake insurance at all?

That depends. Most modern California wood frame homes are fairly resilient and many have withstood some sizable tremors, notes Alan Morris, director of insurance underwriting for the InterInsurance Exchange of the Automobile Club of Southern California. And even if the Big One hits, the federal government undoubtedly will provide some financial relief, some experts say.

But that government aid will be limited and may not cover the cost of your home. In any event, you can minimize the possibility of extensive damage by securing your residence to its foundation with anchor sill bolts and by bracing the water heater against the wall to prevent it from falling. You can also make sure household chemicals, flammable materials and other dangerous items are stored safely.