Pros and Cons on Cal. Earthquake Insurance
artloversplus
8546 replies248 threadsRegistered User Senior Member
I know this topic has been discussed, but in light of the recent 7.1, did you ever review the options again?
My questions are:
1. Is it true that the premium you put in is going to a "pooled fund" and if the money ran out after the big ones, you might not get paid.
2. Are all EQ insurance pool the funds thruogh reinsurance or all independent?
3. How do they determind who get paid or not?
I am still struggling as my house is sitting on Hayward Faults.
31 replies My questions are:
1. Is it true that the premium you put in is going to a "pooled fund" and if the money ran out after the big ones, you might not get paid.
2. Are all EQ insurance pool the funds thruogh reinsurance or all independent?
3. How do they determind who get paid or not?
I am still struggling as my house is sitting on Hayward Faults.
Replies to: Pros and Cons on Cal. Earthquake Insurance
2. CEA policies are all CEA policies. Some insurance companies may offer their own non CEA earthquake insurance, but many just resell CEA policies.
I would not want to buy a CEA policy.
As a practical matter, a house that costs a million dollars to (re)build is unlikely to exist on worthless land. A more realistic scenario is a million dollar house (including land value) with an estimated (re)build cost of $400k or some such, so a 15% deductible would be $60k.
However, note that CEA policies have deductible options of 5%, 10%, 15%, 20%, and 25% now: https://www.earthquakeauthority.com/California-Earthquake-Insurance-Policies/Homeowners/Coverages-and-Deductibles
I believe prudent insurers buy re-insurance & excess policies to help them out when there are massive losses. Many of our neighbors had flood damage and had to make claims.
Last year we took part in the Brace & Bolt program in CA to have the house bolted to the foundation, that is worth doing whether you get insurance or not. With the program you get up to $3K from CA to help pay for it (unfortunately taxable as income on your Federal return). We also installed a gas shutoff valve that is activated by an earthquake; these are required when a house is sold in LA, seemed like a good idea
We had an offer from our agent for a private insurance that was less, but decided on CEA because the CEA policy doesn't have a deductible for loss of use.
Given they predict the Hayward fault is likely the site of the next "big one" I'd be more inclined to get earthquake insurance if I lived there. And be very nervous at Cal football games ;-)
SBA disaster loans will be available in the event of a federal disaster declaration. However, these have credit qualifying requirements. So if you have a bad FICO score, a heavy debt load, poor work history, etc. you probably won't qualify for a loan. We were able to get a loan which covered the insurance deductible, and all the out of pocket costs that seem to add up despite having insurance. The loan was secured by a second trust deed on our house.
Your ordinary homeowners insurance will cover things like broken dishes, food loss, and temporary housing. We didn't have any vehicle damage, but I think your vehicle policy will cover damage to cars (which will happen if the cars are in the garage).
The earthquake insurance covers the structure of the house, so the architectural integrity issues, the broken stucco, and the splintered 4X4's in the attic are covered by earthquake insurance.
FEMA does NOT do a whole lot for you. FEMA's purpose is to handle the immediate crisis...they want you to have a mattress, one TV for the house, one chair per person, and essentially be safe and secure for the short term. FEMA does not do anything to help you rebuild your house. We received around $2,000 from them.
Stay safe everyone.
Can you share with us your Northridge damages and cost of repair. How did the insurance helped, given 15% deductable?
The house was "green tagged" by the city, so we didn't have to move out immediately, but there was so much work that needed to be done that it wasn't reasonable to try to stay during the repair process. There were a lot of houses in the neighborhood that went into foreclosure because the owners had little equity, and they didn't have the money for the repairs. The owners made the financial decision to walk away.
After reading the above posts again, it sounds like earthquake insurance options may have changed. The policy wasn't set by the value of the house, it was just a fixed amount. In our case it was offered by our homeowner's insurance company at $100,000.
The Northridge quake in 1994 was the event that caused insurance companies to flee the earthquake insurance market, since earthquakes are very rare events that have the potential of causing large losses at one time (as the Northridge quake did), making it difficult to assess insurance risks on them*. California law at the time required homeowners insurance companies to offer earthquake insurance, but many insurance companies stopped or threatened to stop issuing new policies or leave the state entirely because they did not want to deal with earthquake risks. The CEA was created as a result, and most homeowner insurance companies resold CEA policies.
*Note that floods are similar types of risks from an insurance standpoint, which is likely why there is government flood insurance.