Earthquake insurance pays the policyholder in the event of an earthquake
that causes property damage. Most homeowners insurance policies in California exclude earthquake damage, unless an additional policy is
purchased for this coverage. Many believe that the federal government will step in with help in the event of a catastophic
earthquake, which is highly unlikely and if a loan is granted, it will likely be far below the amount required to rebuild.
Most earthquake insurance policies have a high deductible
(10-25% of the dwelling coverage limit), which makes this type of insurance useful if the entire home is destroyed,
but not if the home is only slightly damaged. Premiums depend on location, type of construction, and the probability
of an earthquake. As with flood zones, earthquake seismic zones can change over time. Rates may be less costly for
homes made of wood, which withstand earthquakes better than homes made of brick. When seeking a quote, you will be asked by
your agent/broker if the home has cripple walls and if they are braced and if the home is bolted to the foundation.
For information, please visit Earthquakesafety.com. Additional resources are available at Earthquakebracebolt.com.
Another good resource is the California Earthquake Authority (CEA) website. They have a nice calculator if you want to quote coverage options and get an idea of cost.
As with flood insurance or insurance on damage from a hurricane or other
large-scale disasters, insurance companies must be careful when assigning this type of insurance, because an earthquake strong
enough to destroy one home will probably destroy dozens of homes in the same area. If one company has written insurance policies
on a large number of homes in a particular zip code, then a devastating earthquake will quickly drain all the company's resources.
Insurance companies devote much effort toward risk management to avoid such cases.