Understanding earthquake insurance
Nearly 90% of Californians are without earthquake insurance. Here's what it will — and will not — cover.
Over the Fourth of July holiday weekend, a series of earthquakes hit near the southern California town of Ridgecrest, approximately 150 miles south of Los Angeles.
CNN reported the 6.4-magnitude earthquake on Thursday and 7.1 earthquake on Friday led to gas leaks, building fires and water main breaks. While the damage caused was relatively minimal due to the area’s sparse population, the state remains on high alert, remarked Morgan Stanley in a press release, as officials warn a 27% chance of a magnitude 6 or higher earthquake occurring again within the next week.
Insuring against earthquakes
In a state known for its earthquakes, it’s surprising that only about 11% of homeowners and just under 10% of commercial buildings in California are covered by an earthquake insurance policy, such as a policy managed by the California Earthquake Authority (CEA), said Morgan Stanley.
Standard insurance policies, such as homeowners or renters, do not cover damages caused from earthquakes or other natural disasters.
An earthquake insurance policy will, however, cover some of the losses and damage that an earthquake can cause. Basic earthquake coverage will cover a home (up to a limit), personal belongings such as furniture and TVs, and it will also cover temporary and extra costs to live somewhere else while an area is evacuated or while repairs are underway.
What does earthquake insurance not cover?
Even for homeowners and business owners with earthquake insurance, there are four main exclusions the policy will not cover, according to the California Department of Insurance:
- Fire: Earthquake insurance usually does not cover anything that a homeowners policy already covers. For example, if a homeowners policy covers fire damage, even if an earthquake causes the fire, then earthquake insurance will not cover it.
- Land: Earthquake insurance does not cover damage to land, such as sinkholes. However, additional coverage may be available to restore or stabilize land. Also, most policies do not cover landscaping, pools, fences, masonry or separate buildings.
- Vehicles: Earthquake insurance does not cover damage to vehicles.
- Flood: Earthquake insurance does not cover water damage from outside a home, such as sewer or drain back-up, flood or tsunami. A flood insurance policy will cover these damages.
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