An earthquake may shake your home's foundation, but it doesn't have to rattle your financial footing if you safeguard with the right insurance. Your homeowners policy won't be enough.
About 81% of the world's biggest earthquakes occur along the Pacific earthquake belt nicknamed the "Ring of Fire," part of which runs up the West Coast from Southern California to Alaska, according to the U.S. Geological Survey. But quakes do happen in other parts of the U.S., such as two that occurred last year. One was centered in Virginia, and another in Oklahoma, which was that state's largest earthquake in modern times, according to the Oklahoma Geological Survey.
Most U.S. households don't carry insurance that will cover earthquake damage. Industry groups say half the losses from the Virginia quake were uninsured, while less than 1% of Oklahomans had the proper insurance for a quake. Even in California, which has the highest earthquake risk in the country, only 12% of households carry earthquake insurance, according to the Insurance Information Institute.
"That's its own disaster waiting to happen," says Glenn Pomeroy, CEO of the California Earthquake Authority, a nonprofit, privately funded insurer set up by the state government.
Here are five things to know about obtaining and benefiting from earthquake insurance.
No conventional homeowners policy covers direct damage from Earth movement, which includes earthquakes, landslides and sinkholes, says Chris Hackett, director of personal lines policy at the Property Casualty Insurers Association of America. Homeowners interested in getting earthquake coverage will either need to see if their current insurer offers a rider on their homeowners policy or search for a separate policy altogether.
Earthquake coverage is offered by major insurers including State Farm, Travelers and Liberty Mutual. The Insurance Information Institute reports that the largest writer of earthquake insurance is the California Earthquake Authority, or CEA, created after insurers fled the state following the 1994 earthquake in Northridge that caused $10 billion in losses.
Earthquake insurance premiums could exceed the cost of your homeowners policy in high-risk regions, the CEA's Pomeroy says. His agency's rates for annual coverage in California average about $4.50 per $1,000 of coverage, while premiums in lower-risk states can cost a fraction of that, as little as 50 cents per $1,000.
Don't Settle for a High Premium
If the price for earthquake insurance is daunting, there are ways to reduce costs. For example, the CEA offers a 5% discount to California residents who retrofit their existing homes to make them more shake-resistant, Pomeroy says. Such improvements include bolting or bracing the structure to the foundation. Homes built after 1979, when stricter building codes were enacted across the state, may also get lower premiums.
Insurers may offer lower premiums on wood-frame homes versus ones made of brick or masonry, says Hackett. Frame homes typically can withstand shaking better, whereas brick or masonry homes aren't able to flex with the movement and can crack.
Other insurers may lower your premium if you put sprinklers in your home, install metal straps to the walls and roof, or use different trusses, says Jim Whittle, chief claims counsel at the American Insurance Association.
Consider Additional Coverage
Some earthquake policies don't cover your belongings, just the structure of the house. Read the policy carefully to be sure. If you want to cover your contents, you may need to purchase a more comprehensive earthquake insurance policy, which will likely increase your premium.
If you have expensive items, such as fine art or jewelry, you may want to consider buying extra earthquake coverage for those things, on top of the coverage you get for your home's more ordinary contents. Similar to homeowners policies, earthquake insurance will cover items up to a limit.
"For example, your limit for contents coverage may be $100,000, but on fine art you may have a limit of only $5,000," says Whittle. "That may not be enough for the art you have."
Another type of coverage you might buy as part of an earthquake policy would provide "additional living expenses," money to cover the costs of temporary housing and other basic needs after a disaster.
See if Your Other Policies Cover Quakes
Just like homeowners, renters will find their rental insurance doesn't cover damage from earthquakes. Renters who want to insure their belongings against quake damage will need to scout around for a separate earthquake insurance policy on top of their renters insurance.
Meanwhile, comprehensive auto insurance typically covers vehicle damage incurred in an earthquake, says Whittle. However, not all car owners have comprehensive insurance; many carry only liability insurance, as their states require. That won't do diddly if your car is damaged or destroyed in an earthquake.
As for other property, check your existing coverage closely. If you have a boat, for example, your marine policy may cover earthquake damage.
Be Ready to File a Claim
There are a few steps you can take to make filing a claim easier and faster after an earthquake, or any catastrophe. First -- and it may sound silly -- know who your insurer is. Hackett says many times after a disaster, homeowners can't name their insurance company.
Since quakes are so unpredictable, Whittle suggests keeping your insurance agent's card in your wallet, or storing information about your earthquake insurance and other policies in your cellphone.
"We don't want to see people getting killed after an earthquake because they go back in a damaged home to get paperwork," says Whittle.
Second, take inventory of everything in your house. Make copies of receipts from appliance purchases and other big items. Take pictures or video of your belongings. Store this list in a safe deposit box or firebox in your home. Recalling everything that you had is much harder after a catastrophe. Being prepared ahead of time will speed your recovery.