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To Earthquake or Not!

Earthquake insurance is another hot topic. We get asked all the time about the availability of earthquake insurance and the cost. It is our opinion that no financial plan is fail safe without earthquake coverage. This may have you scratching your head but here is our reasoning.

Earthquake insurance is for catastrophic protection. If you own  more than 15% equity in your home it is difficult to walk away if it has major damage in a quake. The 15% number comes from the fact most earthquake policies have a 15% deductible. If you have 15% equity in your home and  it is going to cost more to repair than the 15% for the  repairs, you are now at zero equity in the home. You can decide to repair or walk away. But if you have a high equity and have reached the waning years of employment, waking away is not an option. Lets take an example, You have a home that has a value of $750,000 , have equity of 70% and during an earthquake the home has $350,000 of damage. If you don't repair the  home the loss in selling it is going to be very large. You have the option of borrowing the $350,000 to repair the home or if you have earthquake insurance you can get a loan for $112,500 for the repairs, assuming a 15% deductible. One of those loans is going to be a lot easier to make and easier to pay off. Of course if the damage is less than 15% you are still on the hook for the repairs yourself minus any money that might come from FEMA. From personal experience other than the small grants made by FEMA, they will not make you whole . Even with the low interest rate loans.

The interesting fact about premiums is that they are coming down and new markets are opening. We have carriers that have announced they are filing for rate decreases and hope to have them in early 2016. There are also companies that have gone into the market place that have begun offering deductibles as low as 5%, with offerings of 10% and 20% available as well. With the premiums as low as they are now, it makes sense to safeguard one of your biggest assets.

The models the earthquake companies are using are very comprehensive, so giving you a guess at the premiums is not possible. They base the rate on soil type, location of faults and type of construction of the dwelling and many more factors. We are very happy to take your location information and get a quote for you. It takes just a few minutes and we can give you that peace of mind knowing that the earth rumbling is not going to break you. Give us a call.

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