Is Earthquake Insurance Worth It?

Unexpectedly, earthquake damage is not covered by a standard homeowner insurance policy. Because coverage can be costly, many homeowners choose to take the risk and forego coverage in order to save money.

However, an earthquake can occur in any of the 50 states—the USGS even reports that 42 states are at risk for seismic activity. An earthquake can cause structural damage, power outages, fires, and water damage, to name a few hazards. The consequences can be not only costly, but also disastrous. That is why, if you can afford it on top of your homeowners insurance, earthquake insurance may be worthwhile—especially if you live near a fault line.

Let's look at how this type of insurance works and whether it's right for you.

What Is Earthquake Insurance?

Earthquake insurance protects your home in the event of damage caused by an earthquake. It will pay for the cost of rebuilding your home and replacing your belongings if they are destroyed in an earthquake. If your home sustains significant damage as a result of an earthquake, your policy may also cover the cost of temporary living expenses, such as hotel stays, restaurant meals, pet boarding, and other living expenses while your home is being rebuilt. This insurance is distinct from standard homeowner's or renter's insurance. If an earthquake damages your home and you don't have earthquake insurance, you'll most likely have to pay for repairs out of pocket.

Do I Need Earthquake Insurance?

If you're not sure whether earthquake insurance is right for you, start by assessing your home's earthquake risk. The National Seismic Hazard Map can tell you how close you are to a fault line. It's no surprise that homes in California, Alaska, Oregon, Washington, Nevada, and Hawaii are especially vulnerable to earthquake damage. However, earthquakes have become more common in Oklahoma and Texas in recent years, most likely as a result of an increase in hydraulic fracturing, or fracking. In fact, Oklahoma had the highest number of earthquakes in the country in 2015.

The United States Geological Survey (USGS) provides a helpful list of factors to consider when assessing your earthquake insurance needs, which includes:

  • Your home’s proximity to an active fault
  • Frequency of earthquakes in your region
  • How long it’s been since the last earthquake
  • Your home’s construction type — if it’s a stone or brick home, it has a higher probability of being damaged by an earthquake
  • The soil condition and slope of the land
  • Whether or not your house was specifically designed to withstand earthquakes
  • The cost of earthquake insurance and policy considerations such as the deductible amount

These may seem like a lot to think about, but they're all important to remember. The simplest way to determine whether you need earthquake insurance is to ask three questions:

  • How likely is it that an earthquake will happen?
  • How likely is it that an earthquake will damage your house?
  • Would you be able to repair or rebuild your home after an earthquake if you didn't have insurance?

That last question is crucial because, while most earthquakes cause little or no damage, it only takes one large one to cause catastrophic damage to your home.

How Much Does Earthquake Insurance Cost?

There's no getting around it: earthquake insurance is expensive, and the more likely you are to need it, the higher the cost will be. The cost of earthquake insurance is largely determined by the cost of rebuilding your home at current construction and labor costs. Your dwelling coverage limit should be equal to this amount, not the sale price of your home.

The cost of your policy is determined by the amount of coverage you purchase, your deductible, and factors related to the home itself, such as its age and location in relation to known faults. Every $100,000 of earthquake coverage in California will cost you $500 to $1,000 in annual premiums—but if you live in a lower risk state, you may only pay a few hundred dollars per year.

The variables that determine your rate, in addition to the amount of coverage in your policy and your policy deductible, are as follows:

  • The age and location of your home
  • The number of stories in your house
  • The cost of rebuilding your home
  • Your property's soil type
  • Your home's construction (a masonry home made of brick, rock, or stone) could cost thousands of dollars per year to insure, especially if it's near an active fault).
  • The proximity of fault lines and seismic activity in your area

What Does Earthquake Insurance Cover?

Earthquake insurance pays for the cost of rebuilding your home or replacing your belongings following an earthquake or aftershocks. Keep in mind that earthquake insurance typically only covers direct property damage caused by an earthquake's shaking.

It does not cover indirect damage caused by an earthquake, such as fires or flooding. Your homeowners policy will cover fire and/or water damage caused by burst gas and water pipes in your home. If your home is damaged by an earthquake and you do not have this coverage, you will almost certainly have to pay for repairs out of pocket. A typical earthquake policy includes the following coverages:

  • Dwelling coverage: Covers the cost of repairing or rebuilding your home as well as any attached structures such as a garage or patio. This, however, does not cover a pool or a fence.
  • Personal property coverage: Covers the cost of repairing or replacing damaged belongings, including furniture, clothing, appliances, and electronics. However, this does not apply to vehicles, which are covered by your auto insurance policy.
  • Additional living expense coverage: If you are unable to live in your home while repairs are being made, this portion of your policy will cover temporary living expenses such as hotel stays, restaurant meals, pet boarding, and so on.

For an additional fee, you can add optional coverages to your earthquake policy. The following are the most common add-ons:

  • Building code upgrades coverage: Covers the additional cost of rebuilding your home to meet current building codes.
  • Emergency repairs coverage: Pays for the cost of immediate repairs to prevent further damage after an earthquake.