Personal Earthquake Coverage
Personal lines earthquake coverage is designed to reimburse for damage to a structure and contents as a result of an earthquake. Availability and cost vary widely depending on location, due to proximity to earthquake faults. There are also different forms of earthquake coverage, which protect differently, and costs vary. Deductibles also vary, creating more differences in premium.
There are two main types of coverage. One type of coverage is called a combined single limit. This has a single protection amount, and it lumps contents, loss of use, and structure all into one coverage amount. The problem with this form of coverage is that there is a single, large deductible, based on the full amount of coverage provided. After an earthquake, if only contents are damaged and the deductible takes into account structure as well, the deductible could very well exceed the number of contents and coverage would be nil. This type of coverage is less expensive than comprehensive earthquake coverage, as it is less likely to payout.
Comprehensive coverage has a separate coverage for the structure, for unattached structures (fences and garages,) and contents. Each portion has its own deductible, so it is more likely to pay out after an event. Naturally, it is more expensive than a combined single limit policy.
Loss of use and loss assessment coverage both exist in both types of coverage, and amounts are governed by the limits provided. Fortunately, these last two can usually be varied such that anticipated loss of use and assessments can be covered. Available deductibles are usually 5%, 10%, 15%, and possibly 20%.
Flood Coverage – Not Your Usual Home Insurance
Interestingly, property insurance coverage, both personal and commercial, does not cover rising water and earth movement. If you are in a heavy rainstorm and the damage comes not as a result of wind-driven rain, but of rising water. Homeowners insurance will not cover it.
Neither will Homeowners insurance cover the muddy hill in the back of your house sliding into your den by way of the glass patio door. Both of those situations are strictly the domain of flood insurance.
Flood insurance is created and underwritten by FEMA, the government agency. It may be sold and administered through third-party companies. The rating factors are:
- Flood severity zones, which are assigned a rating number based on the potential for flooding. Elevation and proximity to sources of water are influencers.
- Susceptibility of your structure and contents to damage, based on which structure level they are located. First story—more expensive. The second story, less so.
Commercial Earthquake Coverage
Earthquake coverage is also available for commercial properties. Very often commercial properties are built at least in part of masonry, which makes the cost of earthquake protection skyrocket. Masonry is more likely to suffer damage than wooden frame structures due to its rigidity and subsequent brittleness. Earthquakes in the recent past have completely destroyed brick buildings and unreinforced masonry walls.
It was interesting to see the row of unreinforced cinder block walls all lying flat on the ground after the 1994 Northridge earthquake in California, although the owners I’m sure found it less than interesting. Building codes were changed just after that to require reinforcement with rebar.
The governing documents of Homeowner Associations may require earthquake coverage. Deductibles on a per-building basis are preferred, as it makes the deductible more manageable. If only one building is damaged in an earthquake, for example (very unlikely, but for illustrative purposes let’s go with it,) that building’s owners do not have to absorb the deductible for the entire complex, only the deductible for their building.
Unit owners should obtain personal earthquake coverage and make sure that the earthquake loss assessment coverage on their policy should concur with their potential loss assessment.
Lenders may require such coverage if they are lending on a structure in a flood zone.
There is normally a thirty-day waiting period between application and issuance of the policy, just to make sure the flood is not imminent at the time the policy is purchased. Insurance companies hate to insure sure losses, and FEMA is no exception. They want you to buy when the chances are more random—go figure. Let’s cover additional liability next
This type of coverage requires careful tailoring to make sure that adequate coverage is obtained and budgets are considered. This is definitely not a one size fits all type of coverage.