Seismologists calculate a 99 percent probability that California will experience an earthquake of 6.7 magnitude or greater, causing significant loss of lives and property, within the next 30 years. For the Bay Area alone, the probability is 63 percent.
Yet five out of six California homeowners have no earthquake insurance.
For most of us, our homes represent our largest financial asset. Why would we risk going without earthquake insurance in a state known for its earthquakes?
Some people are natural-born risk takers. They don’t feel the need for any type of insurance – probably would go without property insurance if their lender didn’t require it.
Others may believe the risk of their home being damaged or destroyed in an earthquake is minimal. After all, it’s survived earthquakes before. But remember, every quake is unique, traveling through the ground in different ways.
Some people have enough reserves to cover the cost of repairs themselves.
Still others have so little equity in their homes that it’s not worth it to them to purchase insurance.
But for most people, earthquake insurance just seems too expensive and hard to get. Besides, they figure in the event of “The Big One,” the Federal Emergency Management Agency (FEMA) will step in to help.
FEMA does provide assistance in the event of natural disasters, but most of that assistance is in the form of loans that need to be paid back.
The state has required insurance companies that sell homeowners insurance to offer earthquake insurance since the early 1980s.
But after a series of natural disasters starting with the Loma Prieta earthquake in 1989 and culminating less than five years later with the Northbridge earthquake, 93 percent of the insurance market either completely stopped writing homeowners policies or added so many restrictions that most people did not want it.
In 1995, the legislature created a basic, no-frills earthquake “mini policy” with high deductibles that insurers could sell, allowing them to meet the legal requirements with a lot less risk.
Unfortunately, the deductibles were so high and the coverage so limited that few people purchased it.
The following year, the legislature created the California Earthquake Authority (CEA), a not-for-profit entity that is publicly managed but privately funded.
Insurers could now choose between offering their own earthquake insurance or participating with CEA to offer theirs.
Initially, these policies offered few choices, but the state responded to demand by expanding the options available.
Today, more than three-quarters of insurance companies offering residential property insurance in the state offer CEA policies. More than 1 million California households have earthquake policies through CEA.
How does it work?
Homeowners can sign up for earthquake insurance through any residential insurance company. If that company is affiliated with CEA, they can purchase quake coverage as an add-on. It cannot be purchased separate from a regular property insurance policy.
Policy deductibles range from 5 percent to 25 percent, with the lower deductibles being considerably more expensive. Options can provide move coverage for contents, loss of use and emergency repairs.
For example, if your home is insured for $500,000 and you elect to purchase insurance with a 10 percent deductible, you would be responsible for $50,000 in costs to repair or replace your dwelling. You do not have to pay your share before receiving a payout.
Homes -- including mobile homes -- that meet certain earthquake safety standards, such as through bracing or bolting of the foundation, may be eligible for discounts.
Typical earthquake insurance policies cost between $800 and $5,000 annually, in addition to the basic homeowners policy. Prices are based on the coverage and deductibles selected, and the cost to replace the home.
Policies are also available for renters to cover personal property and loss of use.
The average homeowner with earthquake insurance opts for basic coverage with a 15 percent deductible.
For more information about earthquake insurance, check out the CEA website at www.earthquakeauthority.com or contact your insurance agent.
If you’re wondering if your home is in an earthquake fault zone, or an area of high landslide or liquefaction danger, you can now check out an interactive online map from the California Geological Survey. Type in your address or share your location on your smartphone and get the results. The maps are at https://maps.conservation.ca.gov/EQZApp/app/
But be aware that new fault lines are being discovered all the time. In fact, the catastrophic Northridge quake occurred on a previously unknown fault.
For those currently buying or selling a home, this information will also be provided by your natural hazards disclosure company.
Also for those currently thinking about buying or selling, there is news on the mortgage interest front.
The Federal Reserve voted unanimously last week to raise federal funds interest rate one-quarter point for the second time this year, and signaled it is likely to raise it again in September and possibly December.
In fact, many economists believe rates will continue to climb into 2019.
While the federal fund rate does not directly affect mortgage interest rates, it tends to have a significant indirect impact.
The average rate for a conventional 30-year fixed-rate home loan this week is 4.75 percent.
If you need a referral to a good home loan officer or insurance agent, contact your local Realtor today.
Cher Wollard is a Realtor with Berkshire Hathaway HomeServices Drysdale Properties in Livermore.