Earthquake Insurance: Avoiding Financial Aftershocks

By David Costello

When a big disaster hits everybody talks about it, the media covers it, and at that time it seems like a good idea to invest in protection.

But as time passes, typically 2-4 years, attention fades.

The Napa 6.0 magnitude quake, the first large quake event in 25 years

resulting in over $1 Billion in damage, has put earthquake insurance back on people’s radar screens.

Only 12% of Californian’s homeowner’s have earthquake insurance. Are the rest in denial or making a rational choice?

The following are a list of commonly mentioned rationalizations for not purchasing coverage:

"I'll just hand over the keys to the bank" Homeowner’s who let their banks foreclose on earthquake devastated homes

not only lose all of their equity, but also put their credit rating at risk which could make it difficult or impossible to borrow money for years to come.

"My home survived the 1989 Loma Prieta earthquake" For anyone that knows anything about earthquakes this is the silliest of

arguments.

"My home is bolted to the foundation" This is a better argument than most, however, no amount of retrofitting can protect against a truly devastating shaker. Bolting seems to work best for 1

story frame homes; homes that are 2 or more stories or that have big picture windows or other large gaps in the frames are likely to suffer more damage even if bolted. Of course all the bolting in the world won’t help if the soil you

home is subject to liquefaction (such as San Francisco’s Marina District).

"I will just apply for government assistance/FEMA" The common assumption is that a high impact event will be covered by the

Federal Government. Not so! Assistance to individuals and households is only intended to get people back in their homes. FEMA’s maximum grant to homeowners is $32,000, and most rebuilding aid comes from the Small

Business Administration (SBA). Applicants should remember that such low interest loans won’t cover their existing loans by a penny and must be paid

back. Servicing double mortgage payments could be financially devastating.

"I'm on bedrock" This is one of the most widespread rationalizations for not purchasing

earthquake insurance. Even homes on bedrock can sustain severe structural damage depending on the magnitude and duration of a powerful quake.

Homeowner’s should be more concerned with their homes proximity to major fault lines such as the San Andreas, Hayward, and Calaveras faults (which is

most of the SF Bay Area!). The USGS has stated that there is a 99% probability of a 6.7 magnitude or

great earthquake hitting California by 2038, and a 62% chance of a 6.7 magnitude or greater quake hitting the San Francisco Bay Area within this

same period of time.

Note not all quake insurance carriers are alike! The CEA, the not-for-profit state administered program is not backed by the State of California’s

guarantee fund and is a $10.4 billion ‘pooled limit’ –meaning that there may

not be enough funds to cover all losses should a catastrophic event occur to its 856,000 policy holders. Note the CEA is obligated to take “all applicants”,

no matter what the age of the dwelling is or if it is bolted/earthquake retrofitted or not.

Affluent market carriers are now offering a much more exciting value proposition to their high net worth clients, making earthquake coverage worth

reconsidering:

Example: (Note - premiums vary widely based on dwelling age/# stores/building

materials & location proximity to a major fault)

Home in Pacific Heights/San Francisco:

Option #1

Option #2

*Note it is recommended to scheduled fine arts on to a homeowner’s policy. The premium for $1,000,000 of contents coverage can be as low as $400.

Additional advantages include ‘first dollar coverage’ (no deductible imposed); 150% coverage extension (in the event an item costs more to replace), &

includes all risk earthquake insurance. Often times the CEA’s premium is considerably more for less coverage.

For more information or for a personal insurance review or quote please

contact:

David@ISUCA.com | (415) 828-8122

ISU Centinel Agency | Affluent Market Personal Insurance Division

Did you know?

The cost of retrofitting a home typically ranges between $2,000 and $10,000.

The California Governor’s Office of Emergency Services is offering up to

$3000 to retrofit your home in selected locations? Registration will resume

September 15, 2015. For more details go

to https://www.earthquakebracebolt.com/

Who can I call to see if my home is adequately retrofitted

to withstand an earthquake?

Go to: www.CalQuake.com

View the original article at:

www.David-Costello.com/#!blog/ucf28