Friday, May 6, 2016

5 Reasons Why You Should Get Earthquake Insurance

I’ve been a homeowner in Southern CA since 2005.  I bought my home brand spankin’ new…I mean I even got to tour it while it was nothing more than a frame with floors.  A two-story, 3200 square feet wooden structure looks less sturdy when all one sees is the innards.  The walls and stucco exterior somehow gave it a more cemented look.  But I knew better.  I looked into earthquake insurance.  Mind you this was well over a decade after the Northridge quake.  I expected costs to have come down.  They hadn’t.  I couldn’t afford over $1K a year, along with my mortgage(s), and home owner’s policy.  So I did like most Californians and passed.

After the housing crash a couple of years later, getting earthquake insurance made even less sense.  Like most Americans, I lost a ton of fake equity and my fixed 30-year mortgage financed with a 10% down payment was more than the house was worth.  If it weren’t for the Making Home Affordable plan I qualified for in early 2010, I’d probably have done what many people did and walk away.  Fast forward to today.  I’m now sitting on over $100K in equity, and my home’s value has increased…not to the level it once was, of course, but it is certainly better.

A few days ago, I read this online: San Andreas Fault Locked...
I must admit it scared me.  Now, I am a physical science teacher, and am not so prone to reacting emotionally.  But react I did.  I know enough about plate tectonics, faults, and mechanical waves to truly appreciate the destructive power of a large magnitude earthquake.  I grew up in the Bay Area, and was 10 years-old when the Loma Prieta whopper struck.  As a stock market and real estate investor, I also appreciate risk and how the risk band widens or diminishes under certain scenarios.  The probability of a large magnitude temblor happening in Southern CA is high, not just because earthquakes are a thing in CA.  The last time the So Cal section of the San Andreas Fault shifted considerably was in 1857!  We are so overdue for a big one.  That’s why today I called my home owner’s policy provider, Allstate, and got earthquake insurance.

Here are 5 reasons why you should consider getting earthquake insurance if you live in CA, but also if you live in other high risk states.
  1. It’s not a question of if, but when.  When a damaging earthquake happens, you will be uninsured.  If you have valuable items in your home or a home with a decent amount of equity, will you have enough cash in the bank to replace and rehab it all?  
  2. You can’t afford to pay hotel fees or rent while you pay out of your own pocket to have your home live-in ready once again AND your mortgage at the same time.   Most Americans do not keep thousands of dollars ready for catastrophic events.
  3. Costs have significantly come down.  As of January of this year, the CA Earthquake Authority rolled out (pun intended) new options for homeowners that make getting insurance more affordable.  I am paying, e.g., only $243 a year for $554,563 in coverage with a 10% deductible.  For an additional $25 a year, I got $15K in Loss of Use per year, meaning, I can stay in a hotel or rent a place for at least five months in my area without having to pay for it myself.
  4. Your home is not built on top of bedrock.  My home is next to the San Luis Rey River, and sits on top of sandy soil.  You better believe it will move a lot (more damage) during a strong quake.
  5. Peace of mind.  Are you a worrywart?  If you are, paying a few hundred dollars a year for earthquake insurance will let you sleep at night.  You may go through some hardships immediately following, “the big one,” but they won’t be the types that ruin you financially.

Tragedy can strike at any minute.  The pain of not having a place for you and your family to live can be avoided with adequate earthquake and other hazard insurance.  Thanks for reading and good luck!

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