Earthquake Preparedness

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We just bought a home in Palo Alto and are in the process of getting all our paperwork/insurance in order. Our insurance company has offered us earthquake insurance along with the standard homeowners/flood insurance, but of course the earthquake insurance premium is pretty steep.

We are first-time homebuyers and so have never gone through this process. Is it pretty standard to buy earthquake insurance in the Bay area despite the high premiums?

  • No, we have lived in Palo Alto for over 20 years and owned a house for about 19 and we have never had earthquake insurance. From our research, the premiums are high, the deductibles huge and the payout not great. From conversations with my friends most don’t have it.
  • We do not have earthquake insurance. Either the premium or the deductible is usually very high – I think we were offered a $25K deductible – so unless it’s a catastrophic earthquake, your claim is unlikely to be more than the deductible. However, you may feel that you do want the assurance of having damage to your home covered in the event of a bad earthquake.
  • When my parents and I bought my first house in LA, my dad thought I was crazy to demand earthquake insurance. But I demanded that we add that to the insurance. Nine months later, the Northridge earthquake happened and I lived about two miles away from the epicenter. We had significant damage that was covered by the insurance, thank heavens.
  • When my husband and I moved back to Northern California and became renters, it was one of the few things I asked for. He got it. It is expensive but it’s also better than taking your big investment and gambling that a quake won’t happen.
  • Triple A (CSAA) offers earthquake insurance.
  • The question to ask yourself is, what is your plan in the event of an earthquake that renders your home uninhabitable, and what are the chances of that happening. Many people think that the Bay Area is overdue for a major earthquake. If you could afford to rebuild on your own, or sell the land and move elsewhere, or have assets you could leverage to get a loan large enough to rebuild, then sure, you may not need earthquake insurance. If you’re “house poor,” as we used to say, then I would think hard about at least getting it for a few years until your situation is not so precarious.
  • I’ve heard people before say, “Well, even if I don’t have earthquake insurance, when the big one hits the government will end up bailing everyone out anyway.” Between the example of Katrina and the economy I don’t think that’s true anymore, whether or not it ever was.
  • We did get earthquake insurance because I (as an East Coaster) insisted on it; my West Coast husband thought I was crazy, and my sense is that the majority of people don’t buy it because it is so expensive and, since the deductibles are so high, you are basically insuring yourself against total loss. That said, our Allstate agent helped us find a competitive insurance company (not Allstate) that would provide earthquake insurance at a (relatively) reasonable rate. Some of the insurance companies are basically not in the market anymore. They’ve maxed out their risk. You have to find the companies still willing to be in the market. As a result, there is a LOT of variability in rates and you should be sure to have an honest broker who can help you shop around.
  • We have earthquake insurance. Everyone is different but for me, I feel I am buying peace of mind. If you decide to purchase it, be sure to shop around. We did not purchase our EQ insurance from our homeowner’s insurer but from an independent company that specializes in EQ coverage. Just be sure they are licensed with the Dept. of Insurance in CA. Then you are guaranteed to get your claim paid.
  • I had though EQ insurance was sort of offered through the state so there isn’t much variability in premiums; maybe I’m wrong. Anyway, it seems maybe it would be a better investment to do good retrofitting on your home. It seems to me you’d need to have catastrophic loss to make it worth it.
  • We have had it for the past 6 years or so—GeoVera, recommended by our insurance agent (not sure if they are biased; likely). It is not much more than annual home insurance. If we physically survive an earthquake and our home is damaged, then it’s much better to have insurance than to rely on state (which is bankrupt) or federal governments to bail us out.
  • LA Times
    March 19, 2011  Affordable quake insurance Editorial Earthquake insurance remains unappealing to the vast majority of Californians, but a bill sponsored by the state’s two U.S. senators could help remedy that by slashing the cost of coverage. The earthquakes that devastated Christchurch, New Zealand, and northern Japan in quick succession have prompted many California homeowners to bolt their houses to the foundations and stock up on emergency supplies. But the ultimate in protection for their homes — earthquake insurance — remains unappealing to the vast majority of state residents. A new bill (S 637) sponsored by the state’s two U.S. senators could help remedy that by slashing the cost of coverage. It may be hard for other lawmakers, whose constituents live far from the San Andreas fault, to see why the federal government should get involved. But there’s a good reason for Congress to act, especially when the cost is little or nothing.
    Insurance officials say that no more than 12% of homeowners in California pay for earthquake coverage. One reason is that the policies are expensive and impose big deductibles, meaning that policyholders won’t receive a cent unless a house suffers damage equal to 10% to 15% of its insured value. For the average Angeleno, that means paying more than $1,000 annually for a policy that doesn’t cover the first $27,500 in losses. An earthquake would have to be pretty severe to wreak that much havoc.
    Premiums are high mainly because the California Earthquake Authority, the state agency that provides most of the coverage, is required to amass enough reserves to meet the claims that would be likely in a once-in-500-years disaster. Although the authority has nearly $4 billion in assets, that’s not enough. So it spends more than $220 million a year — 40 cents of every premium dollar — buying an extra layer of insurance from a third party.
    The bill by Democratic Sens. Dianne Feinstein and Barbara Boxer would provide a low-cost alternative to commercial reinsurance. If an earthquake were severe enough to exhaust a state’s insurance reserves, the bill would authorize the state to issue bonds guaranteed by the federal government. The guarantee would translate into a lower interest rate on the bonds, reducing the state’s borrowing costs. To all but rule out a federal bailout, guarantees wouldn’t be available beyond an amount the Treasury Department had previously determined the state could repay. If the state needed more, it could issue bonds without guarantees. And by alleviating the need for commercial reinsurance, the state could cut earthquake premiums by at least a third.
    California lawmakers have joined forces in the past with representatives of states prone to different kinds of disasters to advance broader proposals, but to no avail. Limiting the guarantees to state earth- quake insurance programs may appear to narrow its constituency, but all federal taxpayers will be on the hook to help the uninsured if California is hit by a temblor the size of the one that struck Japan last week. The more people who have insurance coverage, the better off everyone will be.

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