“What do most people do, do they purchase earthquake insurance?”
This is a question we get asked all the time by homeowners.
CLICK HERE to Apply for Earthquake Insurance Online. One application, shopped with 5 insurers. 100% online process. Same Day Quotes.
Earthquakes, out of site, out of mind:
All homeowners carry home insurance. The visual fear of wildfires is real and frequent in the media. It is something that is always at the front of our minds here in California. Also, if you have a mortgage, your lender requires you to purchase homeowner’s insurance (also referred to as hazard insurance or fire insurance.)
But what about earthquake insurance? Lenders cannot require you to purchase earthquake insurance for your home if you have a loan. And, large earthquakes in California are few and far between. The last major earthquakes in California that caused significant property damage were the 1989 Loma Prieta earthquake, and the 1994 Northridge earthquake. So it has been over 25 years since “the big one” has hit.
Fault Lines Everywhere:
For most people, earthquakes are out of sight out of mind. But if you read the geological and seismic earthquake reports and scientific studies like we do, you may feel differently. The threat of a major earthquake occurring in California is very real, and long overdue. Major fault lines crisscross all over California, and more are discovered call the time. In fact, the fault that caused the 1994 Northridge earthquake was not known about before that earthquake struck. But don’t take our word for it. Here is a link to CalTech’s fault line map.
Your Home, Your Largest Investment:
For most, your home is your largest investment. The threat of an earthquake is very real in Southern California. Leaving your home uninsured for earthquake is very risky. As homeowner’s (fire) insurance policies completely exclude coverage for earthquake. So if there is an earthquake, and you have not purchased an earthquake insurance policy, your home insurance will not provide you with any coverage, leaving you totally uninsured. Leaving your largest asset uninsured is poor financial planning. As of 2020, the median home price in Santa Barbara was $1,134,000. An earthquake insurance policy for a home of this value would roughly cost anywhere from $900 to $1,800 annually. Imagine that you had $1,134,000 in a bank account, and there was no FDIC insurance. Would you pay $1,500 a year to insure your deposit? I bet you would. The same is true for earthquake insurance. We don’t think about earthquakes because they do not occur very often. But when they do occur, they are devastating.
CLICK HERE to Apply for Earthquake Insurance Online. One application, shopped with 5 insurers. 100% online process. Same Day Quotes.
Will FEMA Help?
Many people are under the impression that they do not need to purchase earthquake insurance because FEMA will come in to help pay for earthquake claims for the uninsured. This could not be further from the trust. It is highly unlikely that FEMA will come to pay to rebuild your home if you live in Santa Barbara. FEMA itself is very billions in debt to the treasury. And FEMA, while it does help out in many ways, is not here to save you because you chose not to purchase earthquake insurance. FEMA does not swoop in to pay for those uninsured during wildfires, and the same will be true for earthquakes.
Will The Earthquake Insurers Run Out Of Money?
Unlikely. The earthquake insurance companies are very well funded. The main earthquake insurer is the California Earthquake Authority (CEA). It is a misconception that the CEA is part of the State of California. The CEA is a private non-profit earthquake insurer that is affiliated with the large private home insurers in California. The CEA was started after the 1994 Northridge Earthquakes. As of 2020, the CEA has $18 Billion (with a B) in claims paying ability. If there were a major earthquake that hit only the Santa Barbara area, $18 billion would go a long way. Not all homeowners purchase earthquake insurance. And there are also other insurance companies that write earthquake insurance, so not all earthquake insurance is concentrated with the CEA. Of course, anything can happen and any company can go insolvent, but it is unlikely.
There are also private insurance companies outside of the California Earthquake Authority that write earthquake insurance. Examples include ICAT, Chubb, AIG, GeoVera, Palomar, Zurich, and More. We here at Baxter Insurance have access to all of them.
But The Deductible is So High!
Most earthquake insurance policies come with a 15% deductible. This means that if your home is insured for $1 million, your deductible is $150,000. Your earthquake policy would not start paying out until the loss amount exceeds $150,000. A common complaint we hear form homeowners is that the deductible is too high. The good news is that you can now a little more premium to reduce your deductible down to 10%, or even 5%. But even with a high deductible, you have to ask yourself, what is the alternative? Do you have the financial means to self-insure to rebuild your home yourself if you do not have earthquake insurance? What if you never purchased an earthquake policy, and you incur $500,000 in damages? You are either going to have to dig into your savings and investments, or, take a loan to cover the costs. This is not part of anyone’s long term financial plans, and can set you back years.
So, what is the answer to the initial question in this article? What do others do, how many people buy earthquake insurance?
Statewide, we are told that less than 20% of homeowners purchase earthquake insurance. In Santa Barbara, we feel the number is closer to 30% of homeowners purchasing home insurance. The low rates of homeowners purchasing earthquake insurance is a great cause for concern. We know that California is home to some severe natural disasters. We have been on a mission to educate homeowners for years to make the commitment to purchase earthquake insurance, and to look at earthquake insurance as a part of their long term financial plan.
If you need a quote for earthquake insurance, you can request a quote online in under three minutes. We will shop the market and get you a quote back same day, which you can purchase. The entire process is online- Apply online, Docusign, and Pay online or by phone.
CLICK HERE to Apply for Earthquake Insurance Online. One application, shopped with 5 insurers. 100% online process. Same Day Quotes.
If you have any questions, please do not hesitate to contact us anytime.
We are here to assist you!
-The Baxter Team
Phone 805-963-4048
Email service@baxterinsurance.com
