The first earthquake I felt in San Diego was on Easter Sunday 2010. While it lasted for just over a minute and didn’t cause any major damage in our immediate area, it certainly made me uneasy. It made me aware of how vulnerable we are to the forces of mother nature in our new home.
Four years, 2 kids and a dog later, I am reviewing my insurance policies to make sure they are up to date, as I do ever year. Earthquake damage, like flood damage, is not covered through most homeowner’s insurance policies. The cost depends on where you live, the type of house you have and the coverage amounts that you select.
We purchased a California Earthquake Authority (CEA) policy through USAA where we also have our Homeowner’s Insurance. It costs us a couple hundred dollars per year with a 15% deductible. The deductible is the amount you need to pay out of pocket before getting the money to rebuild. For example, if you are covered for a $400,000 house, you have to pay $60,000 ($400,000 x 15%) out of pocket before the dwelling coverage kicks in.
Since other insurance policies such as home and auto have options for much smaller deductibles (ex. $500 or $1,000), this high deductible may be what makes earthquake insurance unpalatable to some. I think it is yet another good reason to have an emergency cash cushion on hand at all times. The reality is that if we didn’t have earthquake insurance, and we experienced earthquake damage, we couldn’t afford to rebuild our house without jeopardizing our retirement and children’s education. While our house isn’t sitting on a fault line as far as we know, we do have faults within close proximity. According to the CEA website, new faults are discovered all the time and no part of California is immune.
In addition to the coverage to rebuild, we are covered for $25,000 (not subject to the 15% deductible) for living expenses while we are displaced and rebuilding. This is essential now that we have children. If school is in session, we can’t head back to the east coast to live with family. We can’t crash with friends since most of them have at least two kids now and wouldn’t have the space to put us up.
I have heard people say they would just walk away from their house if “the big one” came. Even if we were willing to walk away from the equity in our house, which we are not, we couldn’t walk away from the mortgage. If we did, it would hurt our credit score and make it hard for us to get another loan in the future.
To get an idea of what earthquake insurance would cost you, check out the CEA website’s premium calculator. I also highly recommend reviewing their FAQ page and your own policy disclosures and information to make sure you fully understand it.