Broker Check

Do You Need Earthquake Insurance?

May 02, 2024

Do You Need Earthquake Insurance?

On April 4th, the ground shook here in NJ from a 4.6 magnitude earthquake.  While that would be considered a minor quake in some parts of the country, it’s quite a rare and unsettling occurrence here.  In addition, since the initial quake we’ve had over 150 aftershocks.

There wasn’t much damage reported from the quake or aftershocks, but it’s not inconceivable that a crack in a foundation or some other damage to your home could appear, leaving you with a large repair bill.  Therefore, it begs the question: do we need earthquake insurance?

Assessing Risk

The risk of earthquakes isn’t universal across the country.  Some areas (think California) are more prone to larger quakes than others.  You can determine from this link from the US Geological Survey whether your area is at high or low risk.  If your area is high risk, of course you should consider adding earthquake coverage.  It’s a tougher call, though, for those of us in a lower risk area.

Unfortunately, most standard homeowners, renters or condo insurance do not cover earthquake damage and it would have to be added to your policy as a separate endorsement.

Coverage

Before a decision can be made, it’s important to consider what earthquake insurance does and doesn’t cover. 

The typical earthquake policy will cover repairs to your house and damaged belongings, each with its own deductible (explained below).  It may also cover debris removal and emergency repairs, depending on the policy.  However, the typical earthquake policy does not cover fires caused by an earthquake[1], vehicle damage[2], floods[3] and certain other items like sinkholes and some masonry, which could be added as a separate item.

Cost

After considering what the coverage includes, the next decision is about cost.  And the coverage isn’t cheap. 

For starters, the addition of earthquake coverage will raise your homeowner’s insurance premium.  In my case, it would amount to a 20% increase in my overall homeowner’s coverage.  That’s a big increase, considering we’re at low risk for a major earthquake.  Still, if it were just the premium increase I would consider adding the coverage.

The real cost, however, comes in the form of the deductible, which can range from 2% to 25% of the coverage limits on your policy.  If your house replacement cost is $400,000, for example, and the deductible is 5% of the replacement cost, you would have to pay the first $20,000 of expenses from earthquake damages.  That’s a very large amount NOT covered, and might be high enough for you to remain self-insured for an earthquake (which means, if there is damage to your home from an earthquake, you would be responsible for the repairs with no insurance coverage).

As with most financial situations, every case is different.  This is why I strongly recommend you review your home and auto policies with an independent insurance agent.  A professional who handles property and casualty insurance can steer you toward the appropriate coverage for your family and determine whether earthquake coverage is right for you.  This is an important piece of your financial picture and shouldn’t be left to chance.

Of course, if you have any questions please don’t hesitate to contact me.

Regards,

Joe


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Joseph A. Dispenza, CFP® is not licensed for, and does not offer Property & Casualty Insurance.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  See a licensed Property & Casualty Insurance Producer for specific advice.

[1] Your standard homeowner’s policy should cover this expense, subject to policy limitations and deductibles.

[2] If you have automobile comprehensive coverage it should cover this up to policy limits, minus your deductible.

[3] Flood insurance requires a separate policy.