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April 28, 2022

Should You Buy Earthquake Insurance?

Whether or not a homeowner should purchase an earthquake insurance policy is one of the top questions people ask me.

Only about 12-15% of California homeowners have earthquake insurance, and I believe that ratio drops further in The Bay Area and San Francisco. This is because earthquake insurance is very expensive. In a condo building, it will double your homeowners association dues (HOAs). Additionally, most policies come with a 10-15% deductible. This means the damage to the building would have to be pretty severe in order for you to use your coverage.

But if you have substantial equity in your home or even own it outright (e.g., a very small loan or no loan at all) I believe purchasing earthquake insurance is a good idea at this point in time. We’re regularly reminded that “the big one” is on the way. If your building is destroyed and you own it outright, you’ll be on the hook for the total cost to rebuild. Or, you’ll simply have to walk away from what was once your most valuable asset.

The California Earthquake Authority (CEA) is a non-profit entity formed in 1996 that actually offers the earthquake insurance. Participating insurance companies work with homeowners to put their policy in place. Among the companies that offer earthquake insurance through CEA are State Farm, Farmers, Liberty Mutual and Allstate.

Coverage includes dwelling (the maximum amount the insurance company will pay out), along with options for personal property ($5,000-$100,000) and loss of use ($1,500-$25,000). The more coverage you have, the higher your annual premium for the earthquake insurance will be.

The cost of earthquake insurance depends on several factors, such as location, year built, number of stories, dwelling amount and the level of coverage you select for personal property. I have earthquake insurance for my two-unit building in Noe Valley and the cost is a little over $2,000 per year. For an updated single-family home that’s not in a liquefaction zone and has one story over a garage and concrete foundation, you can probably expect the range to be around $1,400 per year.

Condos in large buildings are a bit more complicated. The HOA has to agree to purchase a policy for the whole association. In other words, an individual condo owner can’t buy his or her own policy. HOA dues will also increase substantially ($300-$400/month) for condos in large buildings that have this type of insurance.

What do you look for when evaluating how well a property will hold up against an earthquake? Take note of its overall construction material (i.e., wood-framed buildings tend to hold up better against ground shaking). Review the hazard report rating (i.e., is the building located in a Zone A–the most susceptible to an earthquake, or a Zone D/E, which would have a better chance in an earthquake). And consult a general contractor about how seismically sound the property may be (i.e., foundation bolted, etc). If a property was built before 1906 (year of the big earthquake) and it’s still standing, that’s a good indication that it’s been constructed well.

If you’re interested in more information, contact your favorite insurance rep and inquire about the specifics for earthquake coverage.

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