How Expensive Is Earthquake Insurance in California?

Earthquake insurance in California stands apart from standard homeowners’ insurance policies, which typically do not cover damage caused by seismic activity. While earthquakes are unpredictable, their occurrence in California is a certainty. A separate earthquake insurance policy provides financial protection against potential losses to a home and personal belongings. This specialized coverage helps mitigate the financial risks associated with repairs and rebuilding after an earthquake, offering a crucial layer of security for property owners.

Factors Influencing Cost

The expense of earthquake insurance in California is determined by several factors related to a property’s location and characteristics. Homes situated closer to active fault lines or in areas with higher seismic activity, such as the San Andreas Fault, generally incur higher premiums due to increased risk. The type of soil beneath a home also plays a role, as properties on unstable or liquefiable soil may face greater risks and thus higher insurance costs.

The home’s characteristics also impact the premium. Older homes, especially those constructed before modern seismic building codes (pre-1980), are often more vulnerable to earthquake damage and typically result in higher insurance costs. Construction materials also matter; wood-frame homes generally incur lower rates as wood tends to flex, whereas structures made of brick or masonry are often more susceptible to damage.

Seismic retrofitting, which involves strengthening a home’s foundation by bolting it or bracing cripple walls, can lead to premium reductions. Such upgrades make a home more resistant to earthquake damage, lowering the risk for insurers. Discounts of up to 25% on premiums may be available for older homes that have undergone proper retrofitting.

The chosen coverage limits and deductible percentage directly influence the premium. Earthquake insurance deductibles are typically a percentage of the dwelling coverage, ranging from 5% to 25%. A higher deductible means the policyholder pays a larger amount out-of-pocket before coverage begins, resulting in a lower annual premium. Conversely, selecting a lower deductible will lead to higher premiums.

Understanding Coverage Components

A typical earthquake insurance policy in California includes core components. Dwelling coverage, often referred to as Coverage A, protects the structure of the home and any attached structures, such as a garage. The coverage limit for the dwelling usually mirrors the dwelling limit on the standard homeowners’ insurance policy.

Personal property coverage, or Coverage C, addresses personal belongings inside the home, including furniture, electronics, and clothing. This coverage is often optional and comes with its own deductible. While the limit for personal property can start around $5,000, it can be increased significantly, sometimes up to $200,000, depending on the policy and the value of the belongings.

Loss of Use, also known as Additional Living Expenses (ALE) or Coverage D, provides financial assistance if a home becomes uninhabitable due to earthquake damage. This coverage helps with temporary housing, such as rental homes or hotel stays, and other necessary living expenses like restaurant meals while the home is being repaired. The limit for this coverage can range from $1,500 to $100,000, and typically does not have a deductible under certain policies.

Deductibles in earthquake insurance are percentage-based, typically ranging from 5% to 25% of the dwelling coverage limit. This means the policyholder is responsible for that percentage of the covered damage before the insurance company pays. For instance, a $500,000 home with a 15% deductible would require the homeowner to cover the first $75,000 in damages.

Common exclusions in earthquake insurance policies include:
Damage from fire, even if caused by an earthquake, as fire damage is typically covered by standard homeowners’ insurance.
Damage to land, such as sinkholes or erosion.
External water damage from floods or tsunamis.
Vehicle damage, as this falls under auto insurance policies.

The California Earthquake Authority

The California Earthquake Authority (CEA) is a publicly managed, privately funded, not-for-profit organization established in 1996 following the 1994 Northridge earthquake. Its creation addressed a need for earthquake insurance availability after many private insurers reduced or ceased offering such policies. The CEA serves as a marketplace for earthquake insurance, providing policies to homeowners, mobile home owners, condo unit owners, and renters throughout California.

The CEA operates by offering policies through participating residential insurance companies. Consumers cannot purchase directly from the CEA; instead, they obtain CEA policies through their existing home insurance agents or companies. This structure allows the CEA to reach a broad audience.

The CEA is the largest provider of residential earthquake insurance in the United States, issuing approximately two-thirds of the residential earthquake policies sold in California. Its rates are based on scientific risk assessment, not profit, aiming to be financially sound enough to cover claims from significant seismic events. The CEA offers various policy options with flexible coverage choices and deductible options, typically ranging from 5% to 25% of the dwelling coverage.

Steps to Obtain Coverage

Securing earthquake insurance in California typically begins by contacting a current homeowners’ insurance agent or company. Many standard residential insurers in California are participating members of the California Earthquake Authority (CEA) and can offer CEA policies. Homeowners’ insurance companies are legally required to offer earthquake insurance to their customers every two years.

To receive an accurate quote, gather specific information about the property. This includes the home’s full address, the year it was built, its construction type (e.g., wood frame, masonry), and details about its foundation. Providing desired coverage limits for the dwelling and personal property, as well as the preferred deductible percentage, will help the insurer tailor a quote.

Once quotes are received, review and compare the coverage details, deductibles, and premiums offered by different insurers, including those offering CEA policies and any standalone options. Asking questions about what is included and excluded in the policy is advisable to ensure a clear understanding of the protection provided. This comparison helps identify a policy that best fits individual needs and budget.

Considering seismic retrofitting for the home can also be a beneficial step. Strengthening the foundation and other structural elements not only enhances the home’s resilience to earthquakes but can also potentially lead to lower insurance premiums and eligibility for discounts. Inquiring about available retrofitting grants or incentives, such as those from programs like Earthquake Brace + Bolt, can further reduce the overall cost of making a home more earthquake-resistant.