Buying Earthquake Insurance
Buying earthquake insurance is a perplexing problem in personal risk management. It’s not a requirement on your mortgage, but you are still responsible for the balance of the loan if your home is destroyed by an earthquake. Earthquake coverage is expensive, carries high deductibles, certain damage may be excluded, and the big one may not happen in your lifetime. Yet if the big one occurs, how well can you recover financially from the loss, if at all.
The Earthquake Fault Zones
The fault zone in Washington was thought to be inactive up to the 1990’s. Research on the Cascadia Subduction Zone now shows great earthquakes have occurred on average every 500 years (last 3,500 years) or every 243 years (last 10,000 years). The date of the last great earthquake was 1/26/1700 with an estimated 8.7-9.2 magnitude.
A 7.5 event is thought to have occurred along the Seattle Fault in 900 A.D.
Seattle’s Faults: KUOW
The USGS maintains an earthquake map with recent events of 2.5 or more in Washington State. Crustal earthquakes tend to be more damaging, as a quake’s destructive power depends not only on its strength, but also on location, distance from the epicenter and depth. Deep earthquakes are felt over a wider area. A Washington event can be deep or shallow, and quite a few faults exist.
Policies vary quite a bit on coverage limits/sub-limits/exclusions. Some of the items to review when comparative shopping:
- Deductible. Typically the deductible on earthquake insurance is a percentage of the dwelling limit or a combined limit on all coverage – not the claim damage. A policy with a dwelling limit of $500,000 and a 10% deductible will not pay until there is $50,000 in damage. Deductibles can range from 2.5% to 25%. A homeowners insurance policy with an earthquake endorsement will have a separate deductible (it won’t be the standard $500 deductible).
- Dwelling Limit: Usually written the same as your home’s estimated replacement cost. This limit may optionally be reduced or increased depending on the policy. Reducing limit is lower coverage, but there is a cost savings to the insured for retaining more risk. Increasing the coverage limit (also increases the deductible) can provide for the possibility of increased labor/material costs after the catastrophe.
- Restricted/Excluded Coverage: Stand alone Earthquake policies have severely restricted limits or exclusions on Other Structures (detached structures/fences/driveways), Personal Property (clothes/furniture), and Loss of Use (hotel expenses). Homeowner insurance policies with an earthquake endorsement will typically match the policy limits. Safeco now sells a stand alone earthquake policy, but Washington residents who migrated from the old Liberty Northwest (North Pacific) policies to Safeco would have retained the endorsement with better limits. These policies are identified as ‘Safeco of Oregon’ on the Declaration page. (Washington). The earthquake endorsement is not longer available on new business, and the restricted stand alone policy has to be purchased.
- Masonry: Just about all of the policies exclude damage to brick veneer and chimneys.
I have a number of options for insurance coverage. Earthquake can added as an endorsement on some policies, but most carriers now sell earthquake as a separate policy. Underwriting guidelines may limit the insured’s choices.
Geo Vera: has two options for earthquake coverage and uses a combined single limit vs a dwelling limits
GVIC-EQ-Guide Comprehensive vs Standard
Arrowhead/Palomar: a more flexible that allows you to select specific coverage based on your individual needs. This policy includes these additional optional features.
Partial Limits Coverage: Optional Partial Dwelling Limits of 50% and 25% of Companion HO3/Dwelling Fire Coverage A limit. Discounts of 30%-50% depending on partial limit selected.
Shared Loss Settlement Coverage: Optional Shared Loss Settlement for Dwelling and Other Structures of 25%, 50%, and 75% of loss amount. Discounts depending on shared loss settlement option selected
Retrofitting: Retrofitting is not required. Discounts are available for dwelling built prior to 1973 that are retrofitted including bolting to the foundation and cripple wall (if present) bracing.
Difference in Condition (DIC): Coverage that works as an extension to an all-risk policy which adds perils that are typically excluded. These perils can include earthquake, landslide, and flood.
Click here to access the earthquake quote request form!