Earthquake Insurance

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Topic Author
DrDexter
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Joined: Sun Apr 16, 2017 2:19 pm

Earthquake Insurance

Post by DrDexter »

Trying to evaluate whether earthquake insurance is worth it.

Zestimate for our home 1.8M (purchased in 2016 for 1.2)

Current home insurance premium (does not include earthquake coverage)
~$2k / year

Cost to add earthquake insurance
~$1,970 / year

New total home insurance / year (combined cost of regular + earthquake, total premium per year)
~$4k

Deductible on earthquake insurance
$118k

Earthquake overage on dwelling
~$800k

We live in the SF Bay Area, so the entire area is susceptible to “shaking” depending on where an earthquake might happen.

However, our precise lot is considered to be at Very Low risk of Liquefaction, which I believe is the highest risk factor for whether or not your home would get severely damaged.

While we are on the topic, also curious if there are any good rules of thumb about how much coverage we should be buying for regular home insurance as well. Seems like there are a ton of options to add additional riders, etc and when we bought, we just took some defaults, but would be open to re-evaluating it I just have no idea where to begin. For example, if I was willing to pay $4k / year on home insurance vs $2k, should I look at higher coverage / lower deductibles etc. Wildfire danger is probably a more significant risk for us than earthquakes, so could be better to increase protection against that.
Firemenot
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Re: Earthquake Insurance

Post by Firemenot »

That’s kind of a tough call. We live on Central Coast on a bedrock area so our earthquake insurance is only $200. Kind of a no-brainer. At 2k per year maybe spend 5-10k on any easy structural engineer reinforcement stuff and take your chances? Also, my understanding is single story homes are much less risky. Is your home more than one story? And have you looked at shake risk maps for your area?

Even 2k though isn’t that bad. 2k per year for 700k if something happens. If it’s a once per 100 year likelihood probably not a bad deal.
Big Dog
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Re: Earthquake Insurance

Post by Big Dog »

Live in SoCal and have chosen not to purchase EQ insurance, but every home is different. We are also in a low liquefaction area, with wood frame house bolted to the slab. Most likely scenario is that the chimneys collapse and take part of the wall/roof with them. But I can't forsee how that approaches teh high deductible.

Note, in addition to home repair, EQ insurance has relatively low limits for temporary housing and the like. If your home gets red-tagged, many others in your 'hood will as well, so finding a contractor to repair it quickly will be impossible. You'll be in temporary housing a long time, out of pocket.
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cowdogman
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Re: Earthquake Insurance

Post by cowdogman »

We live in the Seattle area.

Our EQ cover is a little over $3,500/year with a $425K+ deductible. We have an expensive house with no mortgage, so the house is a material part of our net worth. I think about dropping EQ cover every year, but a total loss of the house would be painful--painful enough to keep me paying the premium.

I do think that is the right analysis: How willing are you to take a total loss on the structure? What would be the effect on your net worth: Catastrophic/Painful,/No big deal?
Last edited by cowdogman on Sat May 01, 2021 7:14 pm, edited 1 time in total.
DoubleComma
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Re: Earthquake Insurance

Post by DoubleComma »

Life long CA resident. Lived and owned house is SF Bay Area, Central Valley and Central Coast. Have never purchased earthquake insurance. My personal opinion is the value isn't there. Additionally my experience has been after massive earth quakes (Loma Prieta, Northridge, Coalinga) is FEMA makes available very low cost loans to rebuild, regardless if you have insurance. So by the time you realize contents aren't covered and the deductible being so high I figure I would just take my chances.
Topic Author
DrDexter
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Re: Earthquake Insurance

Post by DrDexter »

Firemenot wrote: Sat Apr 17, 2021 11:56 am Is your home more than one story? And have you looked at shake risk maps for your area?
Single story, slab foundation.
Yes, we definitely have risk of low to heavy shaking depending on which of the multiple earthquake centers near here have the activity.

Firemenot wrote: Sat Apr 17, 2021 11:56 am Even 2k though isn’t that bad. 2k per year for 700k if something happens. If it’s a once per 100 year likelihood probably not a bad deal.
Yeah, that's exactly why it's a tough decision. Obviously if something does happen I'll regret it, but it also feels like a decent amount to put into insurance that could be invested elsewhere. So definitely appreciate the Bogleheads perspective on it.
Big Dog
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Re: Earthquake Insurance

Post by Big Dog »

cowdogman wrote: Sat Apr 17, 2021 12:14 pm We live in the Seattle area.

Our EQ cover is a little over $3,500/year with a $425K+ deductible. We have an expensive house with no mortgage, so the house is a material part of our net worth. I think about dropping EQ cover every year, but a total loss of the house would be painful--painful enough to keep me paying the premium.

I do think that is the right analysis: How willing are you to take a total loss on the structure? What would be the effect on your net worth: Catastrophic/Painful,/No big deal?
Makes sense since fancy homes are more susceptible to serious damage.
While it may seem counterintuitive for more expensive homes to perform more poorly, there are several engineering explanations that support this observation. First, surveys following the 1971 San Fernando and 1994 Northridge earthquakes indicated that the vast majority of damage to residential structures was to the interior and exterior finishes. Analysis of data from Verisk’s 360Value® show that, for more expensive houses, more of the home’s value is concentrated in the most vulnerable interior and exterior finishes. Therefore, expected losses are higher for larger, high-value homes, which have a larger proportion of their value in the interior and exterior finishes. Additionally, rooms in larger houses are typically larger as well, with longer, unsupported spans. These longer spans are more susceptible to damage during an earthquake, causing these homes to be more vulnerable than their standard-sized counterparts.
https://www.air-worldwide.com/publicati ... erability/
RetiredAL
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Re: Earthquake Insurance

Post by RetiredAL »

cowdogman wrote: Sat Apr 17, 2021 12:14 pm We live in the Seattle area.

Our EQ cover is a little over $3,500/year with a $425K+ deductible. We have an expensive house with no mortgage, so the house is a material part of our net worth. I think about dropping EQ cover every year, but a total loss of the house would be painful--painful enough to keep me paying the premium.

I do think that is the right analysis: How willing are you to take a total loss on the structure? What would be the effect on your net worth: Catastrophic/Painful,/No big deal?
Where are you in relation to the known Mt Rainier mud flow paths. Unless you are on bottom-land mud (known for shaking like a bowl of jello), I would be more concerned about Rainier's mud flows if in it's path.
Firemenot
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Re: Earthquake Insurance

Post by Firemenot »

DrDexter wrote: Sun Apr 18, 2021 5:40 pm
Firemenot wrote: Sat Apr 17, 2021 11:56 am Is your home more than one story? And have you looked at shake risk maps for your area?
Single story, slab foundation.
Yes, we definitely have risk of low to heavy shaking depending on which of the multiple earthquake centers near here have the activity.

Firemenot wrote: Sat Apr 17, 2021 11:56 am Even 2k though isn’t that bad. 2k per year for 700k if something happens. If it’s a once per 100 year likelihood probably not a bad deal.
Yeah, that's exactly why it's a tough decision. Obviously if something does happen I'll regret it, but it also feels like a decent amount to put into insurance that could be invested elsewhere. So definitely appreciate the Bogleheads perspective on it.
Incidentally, earthquake risk is one reason I don’t pay down my mortgage any faster than a 30-year schedule, especially with CA being a non-recourse state. I’d rather not tie up anymore money than necessary in my house.
Cruise
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Re: Earthquake Insurance

Post by Cruise »

OP, you say that your house is on land which is "Very Low risk of Liquefaction," which is great that one risk is avoided. Do you know whether the land on which your house is consists of loosely consolidated that might be prone to slumping? That can be stimulated by earthquakes and heavy rains.

https://pubs.usgs.gov/fs/2004/3072/fs-2004-3072.html
Cruise
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Re: Earthquake Insurance

Post by Cruise »

Cruise wrote: Sun Apr 18, 2021 9:46 pm OP, you say that your house is on land which is "Very Low risk of Liquefaction," which is great that one risk is avoided. Do you know whether the land on which your house is consists of loosely consolidated soil that might be prone to slumping? That can be stimulated by earthquakes and heavy rains.

https://pubs.usgs.gov/fs/2004/3072/fs-2004-3072.html
Topic Author
DrDexter
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Re: Earthquake Insurance

Post by DrDexter »

Cruise wrote: Sun Apr 18, 2021 9:46 pm OP, you say that your house is on land which is "Very Low risk of Liquefaction," which is great that one risk is avoided. Do you know whether the land on which your house is consists of loosely consolidated that might be prone to slumping? That can be stimulated by earthquakes and heavy rains.

https://pubs.usgs.gov/fs/2004/3072/fs-2004-3072.html
We definitely have a hill near us which could slide, but it's not directly behind our house. it's a few houses over. I will try to figure out if there is a way to find out about the soil on our lot specifically.
Cruise
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Re: Earthquake Insurance

Post by Cruise »

DrDexter wrote: Sun Apr 18, 2021 11:20 pm
Cruise wrote: Sun Apr 18, 2021 9:46 pm OP, you say that your house is on land which is "Very Low risk of Liquefaction," which is great that one risk is avoided. Do you know whether the land on which your house is consists of loosely consolidated that might be prone to slumping? That can be stimulated by earthquakes and heavy rains.

https://pubs.usgs.gov/fs/2004/3072/fs-2004-3072.html
We definitely have a hill near us which could slide, but it's not directly behind our house. it's a few houses over. I will try to figure out if there is a way to find out about the soil on our lot specifically.
What counts is the land you are on, as well as the land above and below you.
AquaBliss
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Re: Earthquake Insurance

Post by AquaBliss »

I have earthquake insurance in SoCal but mine is pretty cheap. Strange when I lived in 1 zip code it was quoted at 5x more than when I moved down the street to my current home in another zip code, so decided to spring for it in our new place.

I’ve always thought what happens if a major earthquake occurs and there’s 10s of thousands of homes filing claims to rebuild completely. Pretty sure the CEA would go bankrupt and all those years of paying premiums would go up in smoke.
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celia
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Re: Earthquake Insurance

Post by celia »

DrDexter wrote: Sat Apr 17, 2021 11:45 am Current home insurance premium (does not include earthquake coverage)
~$2k / year

Cost to add earthquake insurance
~$1,970 / year

New total home insurance / year (combined cost of regular + earthquake, total premium per year)
~$4k

Deductible on earthquake insurance
$118k
Our earthquake insurance premium is almost the same cost as homeowner's insurance, too. They both cover re-building costs, not the Fair Market Price, like when you sell. I think the biggest factors in deciding your premium are how close the house is to a known earthquake fault and if the existing construction takes earthquake building codes into account (water heaters strapped to the wall, bottom of the walls anchored to the foundation, and shear walls). The fact that there hasn't been a 6.5+ earthquake recently isn't reassuring to me. Just the opposite. Not only are we overdue for a big one, but it is about time for the big one after that. So don't be influenced by "recency bias".
:oops:

There is a separate state agency in California, the California Earthquake Authority that acts like an insurance company, but your homeowners agent acts on their behalf in collecting premiums for them and filing claims. Is your quote for CEA-covered insurance or for insurance provided by your homeowners insurance company? The reason I ask is because CEA insurance is a separate policy from homeowners and you look like you are posting a quote where it is an add-on to homeowners. Why don't you clarify with your agent and get a CEA quote also. CEA also gives you a choice of deductibles.
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Watty
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Re: Earthquake Insurance

Post by Watty »

DrDexter wrote: Sat Apr 17, 2021 11:45 am We live in the SF Bay Area, so the entire area is susceptible to “shaking” depending on where an earthquake might happen.
I don't have a good answer for you.

I lived in the Bay Area years ago when I was ready to buy my first house. I researched the risk of earthquakes and my best guess what that if I bought a house there I might expect to have significant earthquake damage about once in 200 year. (Do your own research and come up with your own estimate.)

That does not sound too bad but that mean that is you own the house for 20 years then there is about a 10% chance that it will have significant earthquake damage while you own the house. You might want to play with your numbers that way.

There were lots of other bigger factors but the earthquake risk was one of the reasons I decided to move to a different area.

One other huge risk to consider though is even if you are OK with the financial risk of an earthquake if there is a "big one" you will have a very difficult or impossible time finding a contractor to fix your house.

I know someone that had family where Hurricane Andrew hit and they had bad roof damage. They had insurance that would have covered it or they could have afforded to pay for a new roof but roofing contractors were so slammed that they were not even allowing you to leave a voicemail. It took them three years with a blue tarp on their roof until they were able to get their roof fixed and there was a lot of additional water damage. Even then they only got the roof because a roofer was working down the street and they pretty much begged them to do their house next.

After Hurricane Katrina hit many houses were fixable but there were not enough workers to fix them so they had to be torn down after they were empty too long.

One thing that made this even worse was that many workers left the area because so many schools were damaged and they needed to move to be able to get their kids back in school.
alexander29
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Re: Earthquake Insurance

Post by alexander29 »

This is a timely post for us because we live on a slope in Western Washington and have looked at insurance at about $1,300 a year. Right now we’ve decided not to because the hill is bedrock and the deductible is $80,000. (There are also clauses in the policy that make us wonder if the insurer could escape coverage, and our agent can’t get an answer. Not a good sign.) A quake that fully destroyed our house would probably be a once-every-few centuries subduction zone event that could level much of the region, possibly bankrupting insurers. However, if we were confident a policy would really pay off, we might do it to sleep at night. Tough call, but for now, no.
longdrives
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Re: Earthquake Insurance

Post by longdrives »

I have earthquake insurance, Bay Area 1.9 mil home, I pay 830.00 annual premium with 50k deductible with 70k in rental home coverage in addition to 500k dwelling. Cheap insurance in case something catastrophic happens.
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DrDexter
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Re: Earthquake Insurance

Post by DrDexter »

celia wrote: Mon Apr 19, 2021 2:08 am There is a separate state agency in California, the California Earthquake Authority that acts like an insurance company, but your homeowners agent acts on their behalf in collecting premiums for them and filing claims. Is your quote for CEA-covered insurance or for insurance provided by your homeowners insurance company? The reason I ask is because CEA insurance is a separate policy from homeowners and you look like you are posting a quote where it is an add-on to homeowners. Why don't you clarify with your agent and get a CEA quote also. CEA also gives you a choice of deductibles.

Yeah this quote I'm sharing is the CEA quote. I don't see any choice of deductibles in what they sent me, but says I can contact my normal home insurance agent (State Farm) for more info. But this is definitely the CEA quote. I only stated it in relation to my existing home insurance because I'm thinking of the combined cost and I think it's useful for comparison sake, but it operates like a separate insurance as far as I understand it.
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celia
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Re: Earthquake Insurance

Post by celia »

DrDexter wrote: Sat Apr 24, 2021 2:35 pm
celia wrote: Mon Apr 19, 2021 2:08 am There is a separate state agency in California, the California Earthquake Authority that acts like an insurance company, but your homeowners agent acts on their behalf in collecting premiums for them and filing claims. Is your quote for CEA-covered insurance or for insurance provided by your homeowners insurance company? The reason I ask is because CEA insurance is a separate policy from homeowners and you look like you are posting a quote where it is an add-on to homeowners. Why don't you clarify with your agent and get a CEA quote also. CEA also gives you a choice of deductibles.
Yeah this quote I'm sharing is the CEA quote. I don't see any choice of deductibles in what they sent me, but says I can contact my normal home insurance agent (State Farm) for more info.
Yes, CEA is separate insurance as the payout should come from CEA instead of State Farm. The CA homeowners insurance agents are required to represent CEA too. It doesn’t make sense to have their own agents sitting around with nothing to do or suddenly hiring 100s of agents after the Big One to help process claims.

I think you can go to their website and play around with different deductibles to see if it is worth contacting your agent to make a change in the deductible..
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gubernaculum
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Re: Earthquake Insurance

Post by gubernaculum »

I live in Northern California and pay 1000 per year for insurance that covers 2 millions in damages. I feel good about it but don't expect to get a cent if disaster strikes. California gov will have no way to pay out all the claims if the big one hits. But I sleep well in hope I get money. I wouldn't rebuild. I would take the money and move to my other house that is located in non-earthquake area. If the big one strikes, there will be no contractors to go around. May take 10 years to rebuild.
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pokebowl
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Re: Earthquake Insurance

Post by pokebowl »

I reside in the most earthquake prone state in the union (Alaska) which has an average of more than 1,000 earthquakes per month. :twisted:

Given the high frequency of earthquakes up here, insurance companies charge a pretty large premium for property damage, usually 20-30% of the total cost of residence as a deductible. That and there are a lot of hoops you will need to go through to be eligible for insurance such as the soil, slope, or type of structure your residence is constructed with. So to me, earthquake insurance makes sense assuming you did your research before buying a property and were able to confirm the property is insurable.

During large ones such as 2018 up here, you do have access to both State and Federal emergency funds, however the process is slow and no guarantee you will be made whole. I would take out some sort of extra liability policy against a 1.8M dollar residence.
fatcoffeedrinker
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Re: Earthquake Insurance

Post by fatcoffeedrinker »

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Last edited by fatcoffeedrinker on Wed Mar 02, 2022 10:16 am, edited 1 time in total.
gubernaculum
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Re: Earthquake Insurance

Post by gubernaculum »

What is their rate for 2 million valuation?
Fractalleaf
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Re: Earthquake Insurance

Post by Fractalleaf »

I have 2 properties in CA and carry EQ coverage on both. The CEA website has an excellent FAQ page that addresses many concerns, including solvency in the event of a catastrophic event. Only about 10% of CA homeowners purchase earthquake insurance. I buy it because I can afford it, and like all insurance policies it helps me sleep a little better at night.
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unclescrooge
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Re: Earthquake Insurance

Post by unclescrooge »

gubernaculum wrote: Sat Apr 24, 2021 3:21 pm I live in Northern California and pay 1000 per year for insurance that covers 2 millions in damages. I feel good about it but don't expect to get a cent if disaster strikes. California gov will have no way to pay out all the claims if the big one hits. But I sleep well in hope I get money. I wouldn't rebuild. I would take the money and move to my other house that is located in non-earthquake area. If the big one strikes, there will be no contractors to go around. May take 10 years to rebuild.
What's your deductible?
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unclescrooge
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Re: Earthquake Insurance

Post by unclescrooge »

I think it's a waste of money and have never carried it.

My closet and oldest friend who lives 30 miles away has carried it for nearly 20 years.

Also, I brought the house up to current seismic code 4 years ago. I bolted the house to the foundation, and sheer-walled half the exterior walls and cross-braced some of the interior walls. It was expensive. I probably prepaid 40-45 years worth of earthquake insurance premiums! :shock:
Last edited by unclescrooge on Mon Apr 26, 2021 12:50 am, edited 2 times in total.
Northern Flicker
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Re: Earthquake Insurance

Post by Northern Flicker »

If your structure and contents are completely destroyed, can you afford to bear the loss? If not, the insurance does not seem optional. If the answer is yes, are you willing to bear the loss?
skis4hire
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Re: Earthquake Insurance

Post by skis4hire »

You mention $800k coverage. $150-200 per square foot is a good starting estimate for rebuild costs which would put you at 4000 square feet. For single story in the bay that seems unlikely? Also check insurance clauses for the coverage amount, in some cases the actual insured value is a multiple like 1.25 or 1.5x the stated coverage. You may be over-insuring yourself.

What year was your house built and has it ever had a seismic upgrade? If your house is not guaranteed to be properly bolted to the foundation (based on building codes when built), then you should get that done.

The damage to a properly built house from most earthquakes will not require a knock down and rebuild.
At $118k deductible, you're essentially only getting use out of it if you have to completely rebuild the home, which seems unlikely.
Mudpuppy
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Re: Earthquake Insurance

Post by Mudpuppy »

DrDexter wrote: Sat Apr 24, 2021 2:35 pm
celia wrote: Mon Apr 19, 2021 2:08 am There is a separate state agency in California, the California Earthquake Authority that acts like an insurance company, but your homeowners agent acts on their behalf in collecting premiums for them and filing claims. Is your quote for CEA-covered insurance or for insurance provided by your homeowners insurance company? The reason I ask is because CEA insurance is a separate policy from homeowners and you look like you are posting a quote where it is an add-on to homeowners. Why don't you clarify with your agent and get a CEA quote also. CEA also gives you a choice of deductibles.

Yeah this quote I'm sharing is the CEA quote. I don't see any choice of deductibles in what they sent me, but says I can contact my normal home insurance agent (State Farm) for more info. But this is definitely the CEA quote. I only stated it in relation to my existing home insurance because I'm thinking of the combined cost and I think it's useful for comparison sake, but it operates like a separate insurance as far as I understand it.
CAE has several options for deductible percentage, personal property coverage, loss of use, and building code upgrade coverage. The only value that is fixed is that the replacement value has to match the replacement value on your main homeowner's policy. Most major insurers default to 15% deductible and the lowest values for personal property, loss of use, and building code upgrades when generating quotes, although in a high-cost area like the Bay Area, I could see them going up to the maximum 25% deductible just to lower the premium costs.

You can see the homeowner coverage options at the following CAE page: https://www.earthquakeauthority.com/Cal ... eductibles

You can see how those options will affect your quote at the CAE calculator page: https://www.earthquakeauthority.com/Cal ... Calculator
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Re: Earthquake Insurance

Post by Mudpuppy »

AquaBliss wrote: Mon Apr 19, 2021 1:59 am I’ve always thought what happens if a major earthquake occurs and there’s 10s of thousands of homes filing claims to rebuild completely. Pretty sure the CEA would go bankrupt and all those years of paying premiums would go up in smoke.
That's addressed in the CAE policy. Read up on the Premium Surcharge clause and the disclosure about not being covered by the California Insurance Guarantee Association.
miket29
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Re: Earthquake Insurance

Post by miket29 »

As I got closer to retirement I realized I wouldn't have enough working years left to rebuild our home if a big earthquake hit and caused serious damage. So I bought the CEA policy. I compared it to the one offered by our home insurance and the coverage for renting another house while ours was being repaired was better (it started from day 1), although the policy was a bit more expensive. Furthermore if I've read their coverage correctly then this will pay for housing while your house is being repaired, even if the repair cost is below the CEA deductible.
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DrDexter
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Re: Earthquake Insurance

Post by DrDexter »

Thanks to everyone here for the additional info. I'm going to contact my insurance company this week and get some more info if we have additional options on how to structure the coverage, but thinking we will probably go ahead and buy the coverage.
gubernaculum
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Re: Earthquake Insurance

Post by gubernaculum »

unclescrooge wrote: Sun Apr 25, 2021 1:04 am
gubernaculum wrote: Sat Apr 24, 2021 3:21 pm I live in Northern California and pay 1000 per year for insurance that covers 2 millions in damages. I feel good about it but don't expect to get a cent if disaster strikes. California gov will have no way to pay out all the claims if the big one hits. But I sleep well in hope I get money. I wouldn't rebuild. I would take the money and move to my other house that is located in non-earthquake area. If the big one strikes, there will be no contractors to go around. May take 10 years to rebuild.
What's your deductible?
I believe its 100K
Big Dog
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Re: Earthquake Insurance

Post by Big Dog »

DrDexter wrote: Sat May 01, 2021 5:05 pm Thanks to everyone here for the additional info. I'm going to contact my insurance company this week and get some more info if we have additional options on how to structure the coverage, but thinking we will probably go ahead and buy the coverage.
Yes, Loss of Use is optional. But note the maximum that you can purchase is $100k, which sounds like a lot, but when the Big One comes, where ya' gonna go? Move to a hotel out of state? Even a cheap hotel would eat up that $100k pretty fast. I guess you could probably get a cheap rental in say, Nebraska (or Fresno), but that makes it difficult to work with contractors.
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unclescrooge
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Re: Earthquake Insurance

Post by unclescrooge »

Big Dog wrote: Tue May 11, 2021 7:57 pm
DrDexter wrote: Sat May 01, 2021 5:05 pm Thanks to everyone here for the additional info. I'm going to contact my insurance company this week and get some more info if we have additional options on how to structure the coverage, but thinking we will probably go ahead and buy the coverage.
Yes, Loss of Use is optional. But note the maximum that you can purchase is $100k, which sounds like a lot, but when the Big One comes, where ya' gonna go? Move to a hotel out of state? Even a cheap hotel would eat up that $100k pretty fast. I guess you could probably get a cheap rental in say, Nebraska (or Fresno), but that makes it difficult to work with contractors.
You can buy a used airstream for $60k. :mrgreen:
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snackdog
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Re: Earthquake Insurance

Post by snackdog »

It is almost impossible to shake a wood frame house enough to damage it beyond the earthquake deductible. Normal insurance typically will cover broken windows and, of course, any eq-related fire.

Insurance is needed if there is potential for the earth under the house to move, liquify, etc and thereby render the structure uninhabitable. This is rare. We see examples from the Marina district 1989 in SF which I believe was built partly on fill and in EQ Park in Anchorage 1964, where homes were built too close to a bluff which slid toward the ocean.

It does make sense to invest in foundation bolts, cripple wall strengthening and automatic gas shutoffs.

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