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Am I Covered for Earthquake?

How about Earthquakes! Am I covered?

Nobody exactly sits up late at night and worries about earthquakes, not even people in California who live on the fault lines. That said, though, earthquakes can happen, even in zones that aren't exactly known for them.

Perhaps you assume that if your home should be damaged by an earthquake, your homeowners insurance policy will cover the damage. That's not necessarily the case. Most of the time, a homeowners insurance policy or a renters policy will not cover the damage that's caused by earthquakes. It's a type of coverage that usually has to be bought separately.

Do I Need to Be Insured Against Earthquakes?

Often, people believe that government disaster relief programs will protect them if their home should be damaged by an earthquake. The fact is, though, these programs are only intended to help you somewhat - not to replace everything you've lost. So you have to ask yourself, if your home should be damaged or destroyed by an earthquake tomorrow, would you be able to rebuild and replace the contents of your home?

Your home is your largest financial asset, and without earthquake insurance, you have no way of protecting yourself against loss. If you have a mortgage, you can bet that even if your home is destroyed, your lender is going to expect you to keep on making payments. And most of the time, your lender won't insist that you carry earthquake insurance. When the mortgage payment comes due, "You didn't tell me!" is not going to cut it.

Ideally, you should think about your finances and how you'll recover if your home is damaged by an earthquake. If you have hugely deep pockets, and you can rebuild without difficulty, that's great, but realistically, most people aren't in that position. So, you should consider adding earthquake insurance to your homeowners insurance policy.

What Are the Risks?

No area is immune from earthquakes. Of course, some areas are more prone than others. In California, for example, there are no areas at all that are considered to be at no risk for earthquakes - there are only areas that are at risk or at higher risk. And if there haven't been earthquakes in a specific area for some time, don't think that reduces the risk - it could actually mean that they're long overdue for a quake. This is because earthquake faults can build up tension over long periods, and then the tension is suddenly released, resulting in a quake. No earthquakes for a long time could mean that the tension is building and building, and all hell is about to break loose.

How Much Earthquake Insurance Should I Have?

How much earthquake insurance you carry will depend on the area in which you live, and also the type and age of your dwelling. Obviously, a condo in the sky is going to cost you more to insure, because the damage begins at below ground level, and it causes the entire structure to shake. An earth-sheltered home, built underground or into the side of a mountain, will cost you less to insure.

Things to Think About

When you're deciding whether or not to buy earthquake insurance, here are some things you should consider:

  • How much equity do you have in your home? Can you risk losing it if your home is damaged by an earthquake?
  • Can you afford to replace your possessions if they're destroyed in an earthquake?
  • Can you afford to replace your home following an earthquake if you have to do it all on your own?
  • Can you afford to cover any other debt you may have if you have to pay to rebuild your home?

Remember that you can't count on the government to help you rebuild your home. Disaster relief, as we've said, is just a helping hand - it's not going to get you back to where you were before. That's what earthquake insurance is for. The main type of disaster relief comes in the form of low-interest loans, and the key word is "loans" - the loan has to be repaid, in addition to the mortgage on your home and any other debt you might be carrying.

Obviously, the last thing you want is more debt, even if it is at a low rate of interest, so if you want to be fully protected against loss or damage due to earthquakes, your best course of action is to consult your insurance agent about adding earthquake insurance to your homeowners insurance policy.