Earthquake insurance: scam or important safety net?

November 12, 2008 9:22 AM

Earthquake insurance in California is pricey – it more than doubles insurance costs, with a very high deductible. MeFites who live in California, what have you chosen to do, and why?

There are decent arguments that it’s a waste of money: with the high deductible (15% of dwelling value) most houses will never have enough damage to trigger an insurance claim, even in a big quake. Plus, with an A-frame house bolted to a slab foundation, my house, built 1979, has a good chance of withstanding a large quake.

But on the other hand The Hayward Fault has ruptured about every 140 years for its previous five large earthquakes. October 21, 2008, marks the 140th Anniversary of the 1868 approximate Magnitude 7 earthquake. Plus, since I am now renting out my home I may be obligated to provide alternate housing to tenants if their home is destroyed.

Previously. Plus seen this, this, this.

posted by quinoa to home & garden (18 comments total)

I have it. It is an extra $50/ month and I get a better nights sleep. Some things I ignore a bit of the math and allow it to make my life more peaceful.

As an artist in this economy, it is my, um, only asset right now. Not worth the risk of not having it. I would rather curb my spending, eat out one less night, etc.

Sorry I don't have any concrete data, just a quality of life data point.
posted by Vaike at 9:45 AM on November 12, 2008

I no longer live in California but I do live in Louisiana. A lot of people here didn't have flood insurance before Hurricane Katrina because they were under the impression that their house wouldn't flood for whatever (logical or illogical) reason. Then their homeowners insurance refused to pay out. I am not currently a homeowner, but I would definitely get [insert applicable natural disaster] insurance.
posted by radioamy at 10:13 AM on November 12, 2008

I live in California. While it is pricey, it is part of owning a home for my family members-everyone has earthquake and fire insurance because who could afford to rebuild without it?

I guess that's the flat line for them: they need catastrophic insurance so when catastrophes occur, they can focus on the truly important stuff rather than worrying about possessions.

I think it slightly depends on where you live in the state- anywhere near the Bay area and I would be absolutely shocked if you didn't get it. On preview, I see you're in Berkeley, like me. I'd get the insurance without question if I were you. If you need the extra money every month, you could try renting out parking spaces...my landlady rents them for $75-$100/month.
posted by arnicae at 10:20 AM on November 12, 2008

I have it as well. It increases my yearly premium from $1200 to $2000 and it has a $50,000 deductible. And I'm damn glad I have it.

I think of home insurance as basically for a catastrophic event. And what would be more catastrophic than an earthquake destroying your home? Earthquakes in L.A. are not an "if" but a "when" so I bite the bullet and spend the money. And as Vaike said, it does help me sleep better at night
posted by cjets at 10:21 AM on November 12, 2008

I live in the SF Bay Area as well ( Sunnyvale ).
It costs me about double my homeowners premium - meaning it TRIPLES my insurance cost.
Not sure if that's because I have an abnormally low homeowners premium, or ridiculously high earthquake risk...

I still have it. As others said, even if you don't expect to ever USE it, it's worthwhile because it protects you from a potential financial disaster that could take a lifetime to recover from. Part of the cost of ownership.
posted by balberth at 10:31 AM on November 12, 2008

We're in the process of closing on a place in San Francisco, and we've heard from multiple people involved in the real estate industry that shockingly few people actually get earthquake insurance in California. We've always gotten it in the past, but when we heard that, we definitely started thinking twice.
posted by NoRelationToLea at 11:07 AM on November 12, 2008

Interesting to read everyone's responses. My ex husband and I decided against the insurance. When we looked at how our property value was broken down, we saw that our house was only about 1/3 of our property value. When you figure in the deductible on the insurance, and realize that most damage after earthquakes to wood frame homes is generally less than that deductible - we couldn't get behind it. It also took a very long time for people to receive their insurance money after the Northridge earthquake in LA (if they got it at all). It's a rip-off as far as I'm concerned.
posted by The Light Fantastic at 11:08 AM on November 12, 2008

I did not get it when I owned a home. We upgraded the foundation, installed sheer walling and used foundation anchors (I think that's what it was called) instead.
posted by Echidna882003 at 12:01 PM on November 12, 2008

We live in the LA area, and don't have earthquake insurance. I don't personally know anyone who has it. Again, because of the very high deductible and high cost--not worth it.
posted by lemonade at 12:11 PM on November 12, 2008

Seconding the Light Fantastic, on the calculation we did for actual buildings cost. Land is the vast majority of your home value*. We live in LA and do not have earthquake insurance. I actually don't remember what the premium cost was for our house, but it was pretty astronomical, and the deductible was more than $50k. I think we had a very limited choice, of the state sponsored California fair plan, or a company called Geo-something. Our homeowners company does not or would not cover us for earthquake. I also don't know any homeowners who have it.

One modifier tot he land value calculation is that you have to take in account what the rebuild cost would be, rather than assuming that the assessed value would be enough to cover the cost. If the entire house collapses into a pile of rubble and you start from scratch, then I woudl say for CA<>
*If you want to see a recent estimation of the land/building value split, you can probably see it on the website for your county assessor. The LA one is here, you can type in your address and see the assessed value for land versus buildings.
posted by Joh at 12:35 PM on November 12, 2008

Ugh, not sure what happened to half my post there.

If the entire house collapses into a pile of rubble and you start from scratch, then I would say for CA that you are looking at at least $200 a sq ft to rebuild.
posted by Joh at 12:36 PM on November 12, 2008

Construction costs in the bay area are more like $300 per square foot and up. We're talking about $1000 or so a year to cover a potential loss of $300,000 or more. The amount of property value accounted for by land is immaterial, since insurance does not cover land value. (Full disclosure: I'm quinoa's spouse, and I had earthquake insurance when I owned a house. I'm speaking up here for the information of y'all following along at home - quinoa has already heard my perspective!)

Getting the insurance means you are paying ~$1000 a year to cover losses between $50K and $300K or whatever your coverage limit is, and you will eat any losses under the $50K deductible. Not getting the insurance means you are self-insuring for any amount of loss, up to the cost of the mortgage you'll have left to repay plus the cost of replacement living quarters.

The whole reason we have earthquake insurance as a separate entity is because regular homeowners policies don't cover it. Why? Because the actuaries figured that insured losses would be high enough to gut any companies stuck paying them.

In making this decision, we all are weighing the cost of insurance, the risk of a loss greater than the deductible - not nearly as high as the risk of loss below the deductible for sure - and the risk and amount of a worst-case catastrophic loss. The regular insurance companies did the math and ran away screaming. Given local risk levels and expenses, I was more comfortable paying for this catastrophic coverage.
posted by expialidocious at 1:24 PM on November 12, 2008

shockingly few people actually get earthquake insurance in California

Which is the precise reason it ends up so expensive. Smaller risk pool.

But then, they may have a point.
posted by dhartung at 3:47 PM on November 12, 2008

Depends on where you live. Bay Area, uh, I think that should be a yes. On the other hand, ever since I moved upstate, there has been ONE (tiny tiny) quake in the 11 years since I moved into the new area. I wouldn't bother in that area.

I'm assuming you live on the Hayward Fault? In that case, get it.
posted by jenfullmoon at 4:06 PM on November 12, 2008

my house, built 1979

Stop right there. Your house. OK?

Now, think about this. If you're a "normal" (read: not fabulously wealthy) person, and a big earthquake did hit--and you know already that it has hit in the past, repeatedly--you would be ruined. R-U-I-N-E-D.

So, assuming that (or not, if my previous assumptions are wrong) what's it worth to you to not have your entire life pulled out from you like a table cloth?
posted by Civil_Disobedient at 6:05 PM on November 12, 2008

We've lived through two San Francisco quakes and the Northridge quake. While our losses were not significant, a Northridge-based couple we know suffered devastating losses. However, because they had earthquake insurance, they were reimbursed nearly $20,000, and were able to rebuild their lives while some of their neighbors walked away from their homes nearly penniless. After that quake, we began carrying the insurance. It's an extra expense but, to us, a worthwhile one.
posted by terranova at 9:25 PM on November 12, 2008

Now, think about this. If you're a "normal" (read: not fabulously wealthy) person, and a big earthquake did hit--and you know already that it has hit in the past, repeatedly--you would be ruined. R-U-I-N-E-D.

This is just fear mongering. A house built in 1979 would be quite well bolted. I reiterate my previous point - wood frame houses are rarely completely destroyed in an earthquake. Most suffer some sort of chimney or possibly foundational damage - this is not going to even come close to using a deductible. The likelihood of needing a total rebuild is incredibly slim. The insurance companies must love you guys.
posted by The Light Fantastic at 10:18 PM on November 12, 2008

No view either way from me, but if you do insure, choose somebody who will be around to pay the claim. I can imagine a big quake could ruin a shaky (sorry) insurer, so maybe if there is a federally backed option, even if it isn't the cheapest?
posted by bystander at 3:54 AM on November 14, 2008