Pros and Cons on Cal. Earthquake Insurance

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.
  1. True in theory for any insurance. Too many claims at one time and the insurance company runs out of money... That said, it is more of an issue for earthquake and flood insurance due to losses being concentrated in time and place (unlike car crashes and house fires, which are frequent small events widely distributed in time and place, from an insurance company's point of view).
  2. CEA policies are all CEA policies. Some insurance companies may offer their own non CEA earthquake insurance, but many just resell CEA policies.

When was your house built? And has it been seismically upgraded since being built?

I just looked it up. The last earthquake on the Hayward fault was 1868.

I have private earthquake insurance. I’m not sure it’s worth the money and I’m not sure that it would provide any meaningful coverage in the event of a damaging but not catastrophic earthquake. Every year I equivocate over the renewal. These days I’m more worried about fire than earthquakes and I’m most worried about being dropped due to proximity to fire danger areas.

I would not want to buy a CEA policy.

Our house came through Northridge just fine which gives some peace of mind. The big downside of insurance for earthquakes is the 15% deductible. That is 15% of the home’s value . It does not include the land. So for ease of calculation, on a million dollar house, the owner pays 150,000 before insurance pays anything.

We have EQ insurance which is relatively cheap ($800/yr?) but with a high 20% deductible. I just want piece of mind in case my house is leveled by a quake and that I will have money (ins.) to completely rebuild. I never want to be in the position that I am paying both a mortgage and a second loan to rebuild my house. Ouch…

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:

I have private EQ insurance also, but I am debating about the CEA insurance, does any thing Worth the money? Given the 15% deductibles, I think it will be difficult to justify with only small quakes, the big one that is over 8 will be of real concerns.

I was in Ridgecrest last weekend. I was in several buildings and two homes. No damage at all. I did see three trailers off their foundations. Businesses are open as usual.

We had private EQ insurance until the company (Amica) forced everyone onto CEA this year. They still handle the billing etc. I was surprised to learn that only about 10% of Californians have earthquake insurance, probably all of us living near a fault. It is expensive but I believe something will be paid out in the event of a catastrophic quake.

We have hurricanes & floods more than earthquakes. When you have a mortgage, most lenders force you to have a policy. After we paid off the mortgage, we went without hurricane and flood coverage for a few years but decided to go back to buying both. We sleep well at night.

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.

The cost of the premium will be prohibitive if you lower the deductible. It will be better off if you are self insured. In addition, they say when a real big one hits, like a 9+, the ground might not be rebuildable and the fund may go bankrupt.

Following a major earthquake, more homes are destroyed by gas explosions and fires than by the quake itself. Fire insurance will cover that damage. You should have an automatic gas shut off valve on your home that will automatically shut off the gas in the event of a significant shaker. But if your neighbor doesn’t have one and that home catches fire, it could spread to your home. I imagine fire departments will be overwhelmed during a “Big One” so your fire insurance coverage is very important.

No earthquake insurance for us, but we live in a townhome and our association does have earthquake insurance. The Rose Canyon Fault here in San Diego is a couple of miles from us.

We just decided to get the CEA insurance, after a few months of vacillation.

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 :wink:

My husband and I survived the Northridge earthquake in 1994, but we had to move out of our house for repairs. We had earthquake insurance, which helped a lot. Here are a few more things to think about when making the decision for your house:

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 insurance was capped at $100,000, with a $10,000 deductible. We maxed out the policy. The remainder was covered with a $30,000 SBA disaster loan. The loan roughly covered the deductible plus $20,000 of other uninsured expenses. This was back in 1994, and the house was just under 1,500 SF, so its hard to know what these dollar amounts would be worth today.
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.