Earthquake Insurance: Who Has It and Who Needs It

Today we are going to talk about the sticky subject of earthquake insurance. We touched on this a little bit in our Financial Preparedness series, including best earthquake insurance practices, but we are going to go a bit more in-depth on for this update.

One of the most commonly asked questions is, “Do I need earthquake insurance?” The answer is not simple. Just like your house isn’t like everyone else’s, what to expect from an earthquake insurance policy (or even your homeowners insurance policy) is unique to your situation. Hopefully, after reading, you’ll have a better understanding of what to consider when shopping for financial products to secure your money and your life.

Is your house at risk for earthquake damage?
Is your home an investment or a risk?

Who needs earthquake insurance?

As we discussed in our article Best Insurance Practices, it really depends on you. Earthquake insurance coverage isn’t required by your lender or by the state. Technically, all fifty states in America are at risk for earthquakes, but there are some states where earthquakes are more likely, more frequent, or more powerful. If you live in one of these states, like Washington, Oregon, or California, the decision to get earthquake insurance should be carefully considered.

You’re well aware of the risks that come with living in one of these Western states. Look anywhere–social media, the news, a quick Google search–and you’ll quickly see how frequent seismic activity is, even if you don’t always feel the quake. Some states may also experience an unexpected rise in seismic activity due to natural or manmade changes to the landscape and the environment.

Either way, you need to know how fault lines can increase your risk and how you plan to respond to that risk. If you’re familiar with your risk factor remember, just like with the Napa earthquake of 2014, some fault lines are either undiscovered, seemingly inactive, or connected to other faults that may cause a chain reaction. Earthquake science isn’t an exact science with predictions, so take this data with some caution.

One massive earthquake can be devastating. Earthquake prep usually brings to mind preparing for physical safety, but not as many people remember the financial recovery. Small earthquakes may not be much to worry about, but one moderate-to-large sized earthquake can be devastating enough to do some costly damage to your home. That’s where insurance makes a difference.

Do I need earthquake insurance?

Earthquake insurance, just like any insurance policy, functions as a way to cover the cost of something you wouldn’t usually pay for out of pocket. Generally speaking, if you own more of your house than you owe on it, or you’re counting on your equity to be a significant investment for your finances, you should give earthquake insurance a serious thought. Like a horrible episode of a home renovation television show, you’ll be possibly living in renovation and repair purgatory indefinitely without a safety net and with neighborhood comps that are also damaged or destroyed.

The tradeoff is a monthly premium in favor of saving hundreds of thousands of dollars after a giant quake strikes your area. Stay tuned–we’ll cover more on how earthquake insurance works next week!

Where can I get earthquake insurance?

Your Homeowners Insurance Carrier

Let’s be clear: your homeowners insurance policy does not cover earthquake damage. If you’re tired of hearing it, many people still are in the dark on this one. However, there are plenty of providers that can help you meet your financial goals with an earthquake insurance policy.

A great first place to search may be your current homeowners insurance provider. Ask your carrier or your insurance agent if an earthquake insurance policy can be added or if you are a good fit for a stand-alone earthquake insurance policy. If you live in California, the law requires that home insurance carriers also offer earthquake coverage. While you may feel more comfortable going with a carrier you already know, don’t stop your search here.

Does my homeowners insurance carrier offer earthquake insurance?

Some homeowners insurance carriers either don’t like to write earthquake insurance business or aren’t well-designed to handle the risk. Those carriers will price their earthquake insurance policies accordingly, and you’ll pay more to cater to their level of expertise, risk, and overall pool of other policyholders.

Likewise, their experience with catastrophic-risk claims is limited. Not only do some homeowners insurance carriers design and rate their earthquake policies to reflect their reluctance, but they may also structure their claims process like their homeowners claims process. Natural disasters like earthquakes can impact large areas all at once, so this means potentially a huge influx of claims of various amounts will hit the homeowners insurance carrier at the same time. In some cases, this can overwhelm an insurance carrier that doesn’t specialize in this type of insurance.

For these reasons, your homeowners insurance carrier may not offer the best deal for you, so be sure to look around and carefully consider all of your options before settling on this one. Choosing an earthquake insurance carrier requires a bit of research, but the benefits are considerable when you secure something that fits your lifestyle and your budget.

State Earthquake Insurance Providers

A second place to check for earthquake insurance is state-managed groups. There are states, such as California, where residents can purchase coverage through a privately funded but publicly managed provider. In California, in order to be eligible, one must be a policyholder of a participating insurer.

Private Earthquake Insurance Carriers

A third place to check for earthquake insurance is a private earthquake insurance provider. In California, Oregon, and Washington, residents can secure earthquake insurance coverage through GeoVera Insurance Company, Coastal Select Insurance Company, and several other carriers. These carriers specialize in earthquake risk and are subject to the same guidelines, financial reviews, and operational standards of homeowner insurance carriers.

How Do I Pick an Earthquake Insurance Policy?

It is essential to shop around, get quotes from various carriers, and weigh your options carefully. Not only should you look at the premium, but read to see what you’re getting with your coverage and if it will work for you in the event of an earthquake. If you’re not sure what you need or you want a second opinion, try talking to your insurance agent (or find an earthquake insurance agent here) to get expert advice. 

Now that we have covered who needs earthquake insurance and where to find it, we will take you through the anatomy of an earthquake policy. What does a policy cover?  How does a deductible work and how is my premium calculated?  What are the pros and cons of a private insurance carrier compared to a state-managed carrier? These questions and more are answered in our next update. Stay tuned!

What is the Cascadia Subduction Zone?

The Pacific Northwest coastline has a hidden danger just beneath the surface. Its name is Cascadia Subduction Zone.

The Cascadia Subduction Zone extends along the coast of the Pacific Northwest. Pictured here: Escola State Park, Oregon Coast
Escola State Park, Oregon Coast.

How dangerous is the Cascadia Subduction Zone?

The last massive earthquake from the Cascadia Subduction Zone was in the year 1700 and measured at 9.0 magnitude. There have been countless smaller quakes, but many of these are hardly noticeable for inland residents. History, however, has something to say about that. Cascadia earthquakes usually happen every 200 to 530 years, and we are in that timeframe now. As time passes, more pressure builds in this underwater megathrust fault.

It is impossible to determine precisely when this earthquake will happen. We do know the results would be catastrophic.  The Cascadia Subduction Zone is one of the world’s most dangerous fault lines. This fault line spans the coast of the Pacific Northwest, putting large cities like Seattle and Portland in its path.

We only need to look to the south to see how the modern-day Pacific Northwest would be impacted. Mexico was struck by two massive earthquakes this year. The first quake was the most powerful earthquake to hit Mexico in a century measuring 8.1 magnitude. The second was a 7.1 earthquake just two weeks later. The first shock sent tremors through Mexico City despite originating in the south. This second 7.1 magnitude quake, however, unleashed catastrophic damage upon this second-most-populated city of the Americas. Hundreds perished, tens of thousands of homes and businesses were leveled in a matter of minutes, and millions felt the tremors.

There’s one difference between the story of Mexico and the Pacific Northwest: tsunamis.

Residents in Oregon and Washington, especially in populated metropolises like Portland and Seattle, could see the same reality as the 2017 Mexico quakes. The difference is the added threat of a significant tsunami.

The amount of tsunami power hidden in the Cascadia Subduction Zone would spell trouble for the Pacific Northwest. A subduction zone is where a tectonic plate dives beneath another tectonic plate. The Cascadia zone is unique in its formation: sediments collect to form wedges, and these wedges are thicker than at most other subduction zones. These two-mile-thick wedges sitting on top of the fault are the reason that a rupture would reach shallower depths. While many subduction zones may go unnoticed, Cascadia is more likely to move the water above it with enough power behind it. The force wouldn’t be focused at a central point, but instead could ripple along the length of the zone parallel to the coastline. The power behind the Cascadia Subduction Zone grows every year.

The Cascadia Subduction Zone is to blame.
Sometimes the source of the problem isn’t so obvious.

If the Cascadia Subduction Zone ruptures, who will help?

Local and federal organizations won’t be able to provide immediate help after the “big one.” Organizations such as the Red Cross and the Oregon Office of Emergency Management admit it would take up to 2 weeks to assist after a Cascadia earthquake. That means residents of the affected area would be on their own for survival in the meantime.

When you consider your preparation plan, what are you missing? In this series, we will take you through what you need to survive for two weeks on your own. We will also give you tips on how to rebuild when the dust has settled. Where do you start? Check out this article that takes you through the basics when thinking about your preparedness plan.