Insurance Tidbits:

How does Earthquake Insurance Work?

There are many options for Earthquake coverage available.  One option is the California Earthquake Authority (CEA).  The CEA offers a “basic” policy that includes coverage for your dwelling and limited coverage for Contents and Loss of Use.  Dwelling coverage is what covers the actual damage to your home.  A CEA policy offers a limit that is the same shown on your regular homeowner policy.  Contents coverage is what covers your personal items (i.e. TV, dishes, etc…) that may be damaged.  A “basic” policy is limited to $5,000, but can be increased to $100,000.  Loss of Use provides coverage if you incur extra expense (i.e. need to stay in a hotel for a few days).  Coverage begins at $1,500 and can be increased to $15,000. 

The CEA also offers two deductible options, (15% and 10%)  The deductible is applied to the dwelling limit.  For example, if your CEA policy was for $200,000, a 15% deductible would mean that you would be responsible for the first $30,000 of any earthquake claim. 

There are several other companies that offer earthquake coverage.  Some of these offer a “comprehensive” policy.  These policies match most of the coverages you have on your regular homeowner policy.  Similar to the CEA policy, the dwelling coverage would be the same.    However, the “comprehensive” policy also provides matching Contents and Loss of Use coverages.  Using the $200,000 home from above, the contents coverage and Loss of Use coverage would be approximately $150,000 and $100,000 respectively.

Another key difference is how the deductible is applied.  On a “comprehensive” policy, all of the coverages are added together to determine the deductible.  Using the example above, your deductible would be 15% of the coverage total, ($200,000 + $150,000 + $100,000).  This would mean that you would be responsible for the first $67,500 of any earthquake claim. 

In Southern California, it’s not a matter of whether there will be an earthquake, but rather when it will occur.  Your home is one of your largest investments.  Although the government may provide some monetary assistance after a major disaster, there are no guarantees.

Jon Gardner, CPCU is an Insurance Agent with Farmers Insurance who offers complimentary insurance evaluations.  His office is located at 27907 Smyth Dr., Suite #101 in Valencia.  He can be reached at (661) 775-9244