Earthquake Insurance

Earthquake insurance is one of the few insurance policies that have a coverage limit. This means you can't buy earthquake insurance in increments like $10,000 or $50,000 to protect your home or business against earthquake damage.

Kathleen Peddicord of the financial site Live and Invest Overseas says "If you live in an area where earthquakes are more common than not, then it's something that should be considered." But if you live in an area with a predicted 20 percent chance of being hit by an earthquake per year, then earthquake insurance isn't necessary.

Earthquake insurance is a type of property insurance that covers damages to your home or business from an earthquake.

What does earthquake insurance cover?

First, it's important to understand that this type of insurance doesn't cover everything. You'll need to purchase flood or wind coverage separately because those two types of natural disasters are excluded from standard earthquake policies. But if you live in a high-risk area for earthquakes and you have a paid-off mortgage on your home, earthquake coverage may be worth considering. Keep in mind, however, that the average yearly premium is $400-$500 which means this type of coverage will eat up a decent chunk of your budget each year.

If you choose to purchase earthquake insurance, here are some of the things the policy will cover:

Loss of building structure from earthquake damage. Damages to buildings such as cracks, foundation damage, broken tiles and wall paint. Structures that may have to be moved because of accumulated storm tides or flooding which are usually covered by flood insurance. Damage to landscaping and fencing. Extensive damage to your possessions, but not damages from water or food that you may need for survival (i.e., clothing, food). Losses caused by earthquakes and a fire that follows had the quake happened just 30 minutes after a fire occurred which isn't typically covered by most situations. If you choose to purchase earthquake insurance, the damage must be severe enough for the fire department to declare it a total loss.

How many earthquakes must occur per year for it to be worth buying?

In the U.S., earthquakes are covered by your homeowners or commercial policy but only if you live in an area where quakes are more common than not. State Farm Insurance says "Earthquake insurance is generally not required because most states allow insurers to omit coverage for any perils excluded from the basic policy." But if you live in California which is predicted to experience a high-magnitude quake (8 or greater on the Richter scale) every 30 years, then it may make sense to invest in earthquake insurance. And that's it. You're prepared for earthquakes.

Just because you have earthquake coverage doesn't mean you'll be completely protected. To be covered by your policy, you must have a paid-off mortgage and must live in an area where quakes are more common than not. Policyholders who purchase their insurance from an online broker will often find they won't receive earthquake coverage based on the United States Geological Survey's Earthquake Risk Map which can be found in the USCGA Insurance Information Institute's website: http://www.insuranceinfoinstitute.org/eib/riskmap/.

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How much is it worth?

The average cost for commercial earthquake coverage is $450 a year. For a homeowner, the average yearly cost is $600. That's a bit more than you might expect for a relatively low-risk type of insurance policy but it will nevertheless cut into the amount of money you can put away each month. The good news is that much of this expense can be covered by your current homeowners or commercial policy if your home or business isn't in an area where natural disasters such as earthquakes are more common than not. If you don't have earthquake coverage on your home at this point, making sure you have it now could pay off down the road. But you should also be aware that earthquakes are unpredictable and that given their frequency, it's very likely that you will need to purchase earthquake coverage if your area experiences a natural disaster.

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What is the difference between fire insurance and earthquake insurance?

Fire insurance provides relief for losses caused by fire and a typical policy will cover damages to your home or building, even if it is not owned by you. It also protects your belongings.

Earthquake insurance provides relief for losses caused by earthquakes and certain related items to your home or building that are not covered by your typical fire policy, such as landscaping.

How many earthquakes occur each year?

The USGS reports that "about 500,000 earthquakes occur annually around the world." Between 15,000 and 18,000 of these take place in the U.S. While only about 10 percent of them cause damage, it's still important to understand how and what type of coverage you need in case you're living in a high-risk zone for natural disasters.

Are there any other types of insurance you can purchase for earthquake coverage?

If an earthquake wins't happen in your area over the next five years, then you can purchase earthquake insurance from the National Flood Insurance Program (NFIP) to protect your building. This program also offers coverage for your personal belongings. However, be sure to check each agency's policies carefully as not all NFIP agencies will provide the same coverage. Also, because of its regulation by two federal agencies and a federally appointed board of directors, NFIP offers some discounts on premiums compared to single-state competitors. And finally, the NFIP's website is in several languages so look for something that works for you when possible: http://www.fema.gov/national-flood-insurance-program

What's the best way to protect your home from earthquakes?

To prepare for earthquakes, it's important to know the risks of a natural disaster in your area. The USGS reports that "earthquakes have affected 41 states in the U.S., Puerto Rico, and the U.S. Virgin Islands." If you live anywhere else, let's hope that your risk of experiencing earthquakes is low so consider purchasing an earthquake policy on top of what you already have with your homeowners or commercial insurance policy.

Conclusion

Earthquakes are unpredictable. If you live in an area that is prone to earthquakes, it's never a bad idea to look into coverage. Even if earthquakes are rare in your area, it's possible that they could happen anytime and damage your home or building. Earthquake policies can help insure that the cost of repairs isn't more than what you can afford to pay. If you're thinking about purchasing earthquake insurance for your home or business, go online and check with several of the top-rated insurance companies out there so that you have the best chance at finding a good policy with the lowest price possible. You can start with a comparison site such as www.eHealthInsurance.