There certainly have been plenty of reminders recently as to how fragile our living situation can become in a matter of minutes. The hurricane activity ripped apart areas in Texas, the Gulf, and eastern seaboard, plus the devastation we’ve seen in Puerto Rico and even as far east as Ireland; the fires in our own California state and our Oregon neighbors; the earthquakes that hit Mexico twice, Chile, Japan, New Zealand, and others that continue to rattle the Ring of Fire around the Pacific and more.

Looming Threats

Shot of a Santa Clara County Neighborhood from an article published on October 12, 2017. From: The Mercury News by Judy Peterson of The Bay Area News Group

Despite our gorgeous weather and beautiful coastline, many are often incredulous that Californians have no problem living here despite the looming threat of earthquakes. California natives or long-time residents often laugh and shrug it off, saying it’s rare that we have a major earthquake and often times, we don’t feel the smaller ones anyway.

Native Californians are also all-too familiar with the seasonal wildfires that sweep through communities, like the recent Santa Clara fires in Northern California which left merely ruins in its wake. Residents were practically blind-sided with the extent of damage it caused. Many evacuated thinking it was just precautionary and they would just return to their homes later on. When they did return, there were little or no homes to be found.

While earthquakes and devastating fires are not really the norm, it still never hurts to prepare for the worst. In the wake of the barrage of natural disasters this year, many people have been preparing emergency/disaster and survival kits, stocking up on water and other supplies necessary to survive for at least a few days with only basic essentials.

Don’t Forget the Other Essential

What is often left out of the conversation about disaster-preparedness is insurance. While insurance is often required for homeowners and renter’s insurance for rental situations, many don’t realize exactly how it works or what is covered until they find out the hard way: after they’ve already endured the loss of their home or items, and discover that those items were not covered under their current policy.

What You Need to Know

Homeowner’s Insurance

If you’re paying a mortgage on your house, you’re required to have homeowner’s insurance in place. However, if you fully own your house, you are not required to carry homeowner’s insurance, but that doesn’t mean you should go without.

Homeowner’s insurance can help:

  • Cover your property and possessions if they’re damaged and destroyed by a covered loss.
  • Protect your assets if you’re sued for alleged negligence that caused an accident resulting in property damage or injury to another person.

For a homeowner, your homeowner’s insurance contains six different coverages:

  • Coverage A: Dwelling house and attached structures.
  • Coverage B: Other Structures independently standing structures on the property, e.g., detached garages, tool sheds, etc.
  • Coverage C: Personal Property personal items that belong to you or other family members residing in the household.
  • Coverage D: Loss of Use expenses incurred by not being able to live in your home due to damage, e.g. accommodations, meals, warehouse storage.
  • Coverage E: Personal Liability injury occurring on the property
  • Coverage F: Medical Payments to Others liability.

Coverages B-F are generally a certain percentage of Coverage A, but additional insurance is often available to purchase for increased coverage.

Coverage A is designed to protect your house and attached structures due damage by a covered peril. Most insurances define these perils as

  • Fire or lightning
  • Windstorm or hail
  • Explosion
  • Riot or Civil Commotion
  • Aircraft
  • Vehicles
  • Smoke
  • Vandalism & malicious mischief
  • Theft
  • Volcanic eruption
  • Falling objects
  • Weight of ice, snow, or sleet
  • Sudden & accidental water damage
  • Breakage of glass 

Perils typically not covered by a Homeowner’s Policy are:

  • Earthquake
  • Earth movement
  • Termites
  • Insects, rats, or mice
  • Water damage caused by seepage or leaks
  • Losses to houses vacant for 60+ days
  • Mold
  • Flood
  • Wear and tear or maintenance
  • War
  • Insurrection
  • Tidal Wave
  • Neglect
  • Nuclear hazard.

Different insurance agencies may have more specific outlines of what is or is not covered; be sure to discuss with your agent what is covered by your policy. They will also help you determine if you need more or less coverage for certain parts of your policy.

Earthquake Insurance

You’ll notice that earthquake insurance is not covered under a traditional homeowner’s policy. You are also typically not required to purchase earthquake insurance, but that doesn’t mean you shouldn’t consider it.

Only 17% of Californians possess earthquake insurance, probably because it is not a required insurance and the idea of a devastating earthquake has been staved off long enough that the threat does not seem so imminent. Additionally, earthquake insurance tends to be more expensive considering what it does and does not cover.

However, for the average person, their house is likely one of their larger assets and it could pay to say, ‘better safe than sorry.’

What Does Earthquake Insurance Cover?

Earthquake coverage is typically comprised of three different parts, offered by the California Earthquake Authority (CEA):

  • Part I: Dwelling coverage
  • Part II: Personal Property
  • Part III: Additional Living Expenses or Loss of Use

Earthquake policies are structured differently than homeowner’s policies, but some of the coverages are based off of your personal homeowner’s policy. Compared to homeowner’s policy, earthquake policies are more limited to what is covered. For example, separate structures are typically not covered, and certain types of exteriors are not covered unless that additional coverage is added to the policy.

What Earthquake Insurance Does Not Cover

The following are not covered under earthquake policies, even if the damage was caused by an earthquake.

  • Fire
  • Land
  • Vehicles
  • Flood

Interestingly, because a homeowner’s policy is structured to cover fire, a fire caused by an earthquake would still be covered by your homeowner’s policy and not your earthquake policy. Similarly, damage to a vehicle, though caused by an earthquake, will not be covered by your earthquake policy; you must check with your auto insurance policy or agent to see if that is covered. Flood insurance is another type of insurance altogether, and similar restrictions apply.

The Takeaway

If you have a home with a mortgage, you’re likely to already have homeowner’s insurance in place. If you’ve paid off your mortgage and the house is yours, don’t be quick to let your insurance lapse with the temptation of saving money. Though we may be careful in our personal lives and homes and hope that disaster will avoid us, sometimes there’s just nothing you can do to prevent disasters from wreaking havoc on your home or in your life.

Just to note, more than 2 million homes in California are at high or extreme risk of wildfire, the highest in the United States. That’s more than double the homes at risk than Texas, which placed second on that list of homes at high or extreme risk from wildfire. Additionally, the 1994 Northridge, CA earthquake was rated the 5th costliest disaster in the United States, at $12,500 of insured loss, which actually converts to $14,036 taking into account inflation rates as of 2016.

The best thing to do is sit down with your homeowner’s insurance agent and review the coverages to your home, and also discuss that earthquake policy and even flood insurance if your home happens to be on a floodplain. Your agent can help you determine the best balance between affordable insurance and ensuring the value of your home and assets are covered.

 

Check out these references for further reading:

“Santa Clara County Firefighters Battling Wine Country Blazes.” The Mercury News. Retrieved 7 November 2017. http://www.mercurynews.com/2017/10/12/santa-clara-county-firefighters-battling-wine-country-blazes/

“Significant Earthquakes: 2017”. United States Geological Survey (USGS). Retrieved 7 November 2017. https://earthquake.usgs.gov/earthquakes/browse/significant.php

“Homeowners Insurance.” Farmer’s Insurance. Retrieved 7 November 2017. https://www.farmers.com/home/homeowners/

“Residential Insurance: Homeowners and Renters”. California Department of Insurance. Retrieved 8 November 2017. https://www.insurance.ca.gov/01-consumers/105-type/95-guides/03-res/res-ins-guide.cfm

“Rethinking Your Stance on Earthquake Coverage”. LA Times. Retrieved 8 November 2017. http://www.latimes.com/la-homeauto-story1-story.html

“Earthquake Insurance.” California Department of Insurance. Retrieved 8 November 2017. https://www.insurance.ca.gov/01-consumers/105-type/95-guides/03-res/eq-ins.cfm

“Key findings from 2017 Verisk wildfire risk analysis.” Verisk. Retrieved 8 November 2017. https://www.verisk.com/insurance/visualize/key-findings-from-the-2017-verisk-wildfire-risk-analysis/?utm_source=Social&utm_medium=Twitter&utm_campaign=VeriskSM&utm_content=842017

“Spotlight on Catastrophes – Insurance Issues”. Insurance Information Institute. Retrieved 8 November 2017. https://www.iii.org/issue-update/spotlight-on-catastrophes-and-insurance-issues

 

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