Are Earthquakes Covered by Insurance?

Earthquakes are unpredictable natural phenomena that can cause extensive damage to homes and businesses. Many individuals wonder if their existing insurance policies provide protection against such events. Understanding insurance coverage for natural disasters, particularly earthquakes, is an important step in safeguarding financial well-being and property.

Earthquake Damage and Standard Policies

Most standard property insurance policies, including homeowners, renters, and business insurance, exclude damage caused directly by earthquakes, earth movement, or seismic activity. Without specific additional coverage, the financial burden of repairing or rebuilding after an earthquake falls on the property owner. The catastrophic and widespread nature of earthquake damage, coupled with the difficulty in actuarial assessment for such events, contributes to this standard exclusion.

While direct earthquake damage is excluded, some indirect damages may receive coverage under a standard policy if they result from a covered peril. For instance, if an earthquake causes a gas line to rupture and leads to a fire, the fire damage itself would be covered by a standard homeowners policy. Similarly, water damage from burst pipes, if covered under the policy’s specific water damage provisions, might be addressed. This coverage applies only to the indirect peril, not to the initial structural damage directly caused by the earthquake’s shaking.

Dedicated Earthquake Insurance Coverage

Dedicated earthquake insurance provides specific financial protection against damages resulting from seismic activity. This coverage can be obtained either as a separate, standalone policy or as an endorsement added to an existing standard property insurance policy. This specialized insurance is designed to fill the gap left by standard policies, which generally do not cover earthquake-related losses.

Earthquake insurance typically covers damage to the dwelling, encompassing the structure of the home and attached components like garages. It also extends to personal property, covering the loss or damage of belongings inside the home. Additionally, if a home becomes uninhabitable due to earthquake damage, Additional Living Expenses (ALE), also known as loss of use coverage, are usually included. This provision helps cover temporary housing, food, and transportation costs incurred while the home is being repaired or rebuilt.

Dedicated earthquake insurance policies have common exclusions:
Damage to the land itself, such as sinkholes, landslides, or erosion caused by the quake.
Damage resulting from floods or tsunamis, even if triggered by an earthquake, which requires separate flood insurance.
Damage to vehicles, as this falls under auto insurance policies.
Pre-existing damage, or damage not directly caused by the seismic event.
Specific structures like swimming pools or fences, or requiring additional coverage for them.

Obtaining and Valuing Earthquake Coverage

Acquiring earthquake insurance involves several avenues, primarily through private insurance companies. Many insurers offer earthquake coverage as an endorsement to an existing homeowners policy or as a standalone policy. In some regions, state-specific programs may exist to make coverage more accessible. These programs often work with private insurers to provide policies to residents.

Deductibles for earthquake insurance are often structured as a percentage of the dwelling coverage limit, rather than a fixed dollar amount. These percentages typically range from 5% to 25% of the insured value of the home. For example, a 10% deductible on a $300,000 dwelling coverage would mean the homeowner is responsible for the first $30,000 in damages. Policy limits for dwelling, personal property, and additional living expenses are established based on the home’s value and the desired level of protection.

The cost of earthquake insurance premiums is influenced by several factors:
Geographic location, with properties closer to active fault lines or in high-seismic zones generally incurring higher premiums.
The age and construction type of the home; older homes or those made with less flexible materials like masonry may have higher rates compared to newer, wood-framed structures.
The overall value of the home and its contents.
Seismic retrofitting efforts like foundation bolting or chimney bracing.