The 1906 San Francisco earthquake showed why it’s a bad idea to build brick and masonry buildings in an earthquake zone.
When it comes to living in Southern California, earthquakes are a part of life. Thankfully, in my thirty years of homeownership here, and despite several very large temblors, including a couple of 7.0 shakers, I’ve never had to worry about any resulting damage beyond minor cracks to interior walls and exterior stucco and hardscape. The main reason for that is because, unlike brick buildings, wood frame homes that make up the vast majority of Southern California residences are extremely flexible structures. As a result, they’re usually able to withstand the shaking that all but the most catastrophic earthquakes can dish out.
That’s not to say that during a major temblor lots of pictures can’t fall off the walls, cupboards won’t be emptied of their contents, and windows won’t crack or break — but the odds of a wood-frame house being turned into a terrifying heap of splintered lumber and shattered glass are long.
Earthquakes Can Happen Almost Anywhere
Of course, earthquakes in America aren’t limited to California; they’re common up and down the entire Pacific Coast.
There have been some significant temblors east of the Rockies too.
In 2011 an earthquake registering 5.6 hit central Oklahoma. More notably, between 1811 and 1812, four major earthquakes of magnitude 7.0 or greater struck the region surrounding New Madrid, Missouri. The shocks were so powerful that they were felt as far away as Ohio and Virginia.
The East Coast gets them too. Believe it or not, several years ago New England was struck by at least 10 earthquakes — although none of them were as large as the magnitude 5.8 shaker that struck Mineral, Virginia in 2011.
In 1886 a magnitude 7.3 quake struck Charleston, South Carolina. And Cape Ann, Massachusetts, experienced a strong temblor measuring 6.0 in 1755.
Other significant modern-day earthquakes in the eastern US measuring over 5.0 have struck Plattsburgh, New York, in 2002 and Pymatuning, Pennsylvania, in 1998.
The Pros and Cons of Earthquake Insurance
The reason I bring this up is because my homeowners insurance policy needs to be renewed; the basic premium is approximately $1100. As part of the process, the insurance company is also offering me the opportunity to buy earthquake insurance for an additional premium of $839.
So, is earthquake insurance worth it? That’s hard to say because there are so many variables to consider, and earthquake insurance policies and rules vary on a state-by-state basis.
In my case, the earthquake insurance policy being offered by the California Earthquake Authority would cover $304,638 to rebuild my home. Unfortunately, there is a 15% deductible on the structure’s replacement cost, which means the first $45,695 in damages will come out of my pocket before I see a penny from the insurance company.
Here’s the rub: Short of my home being completely destroyed, it’s fairly unlikely I’d encounter damages far above the policy’s large deductible. That hunch is backed up by the fact that total loss claims from earthquakes are rare; California’s two biggest temblors — the 1989 Loma Prieta quake and the 1994 Northridge quake — prove this out. Roughly 45,000 claims were submitted after the Loma Prieta quake, and the average inflation-adjusted value was $26,000. Meanwhile, the Northridge quake generated 195,000 claims with an average value of $59,000 in 2018 dollars.
If my home was significantly older, or built of brick or masonry construction, I would probably err on the side of caution and buy the earthquake insurance; but it’s not. I have a relatively new 20-year old wood-frame home that’s bolted to the foundation and constructed to modern earthquake-resistant standards.
That’s why, after carefully weighing all the risks, I’ve decided to take my chances and decline the earthquake insurance. For me, the potential benefits simply don’t justify the cost of the coverage.
Photo Credit: California Watch
It sounds like a pretty steep price when it has that high of deductible and can really only be utilized if there’s a full loss. I live in Missouri and have never thought about having an earthquake here.
I live in the SF bay area and have always passed on earthquake insurance. The deductibles are way too high for me. I’ve lived through some big quakes here and the homes and buildings always stand up well to the shaking.
We live on the Pacific Rim, and so have to make this same decision. Our area is subject to mega-quakes up to 9+ magnitude. We do have earthquake insurance, and it’s about as costly and has the big deductible just like the policy you describe. I hear your logic though; it’s a tough decision. Our house is wood frame also, but built in 1966, so I’m guessing not especially earthquake-resistant. We also have a huge structural beam that runs the length of the house. I’m not qualified to have an opinion on this, but I worry about this beam being jolted off of whatever is holding it aloft and then falling. That would pretty much wreck the house I’m guessing. I think about half the homeowners in our area have earthquake insurance.
Yeah, Kurt. If I lived in an area that has a history of 9+ magnitude quakes, I am certain I would buy the insurance.
As a minimum, I would also retrofit my home so that the home is securely bolted to the foundation — a house that stays in one piece but slides off its foundation is probably toast. I’d also make my cripple walls shear resistant by attaching plywood panels to them.
Wonderful, I had a great time reading your article.
Um, okay. And I had a wonderful time reading your comment!
“If my home was older, or built of brick or masonry construction, I would probably buy it, but its not. I have a relatively new wood-frame home” – Haha, somehow we just talked about this on my site.
Do you have a fireplace? Does it (and the chimney) carry hairline cracks from previous quakes, or is it some flexible metal?
My opinion: regardless of what the three little pigs said, there’s no place safer than inside a stick-built house in an earthquake. You’re in more danger from the pipes in your house breaking than the house itself.
Bolting to the foundation is a nice feature – I think CA building codes didn’t specify that was necessary until the 70s. Another thing to watch out for (at least here in the Bay) is multi-story houses built before 1984 when the codes on the garage were different – picture houses on stilts in an earthquake. No good.
Fireplace, yes. No cracks though. The free-standing portion of the chimney is very short and situated in the center of the house.
My home’s foundation also has a post-tension concrete slab foundation that is designed to resist bending during excessive shaking.
As for the faux-cantilever construction (supported by thin posts) as you mention, LA has its share of older homes overhanging steep hillsides and supported by a series of supporting stilts. Scary. Nice views, but potentially deadly if the epicenter of a very large quake is close.
Is the possibility of earthquake damage as high for you as floods are for us? We have to buy a separate $320 flood insurance policy here along the Gulf Coast since flooding seems to happen randomly and you never know, but it doesn’t sound like you have the same high probability of eventually being shaken to the ground.
I don’t know what the relative probabilities are, Crystal. However, I believe there are contoured flood hazard maps available that define the probabilities of your property being inundated by a flood. I don’t know if they are put together by insurance companies, or FEMA or the Army Corps of Engineers, but I am fairly certain they exist.
I used to have an old contour map of Southern California that detailed the amount of shaking the ground will experience depending on location — but I lost track of it. I believe it is based upon soil composition and elevation (as I understand it, homes in the foothills like mine, or on mountains tend to see less shaking due to the dampening effects of the hills).
Good article. I am selling my brick home (I live in MO) and buying a no-brick home also in MO. MO has had some of the most powerful earthquakes in USA history – the one in the 1800’s caused the mighty Mississippi to change directions for awhile.
Len, what do you think of homes with basements? Nearly all houses have basements in my area. They are poured concrete in most cases.
I also have the 15% deductible – it would be over 40 grand if something ever happened. I could drop the earthquake insurance and save some cash.
I need to consider the basement angle…
Spedie, I’m not a civil engineer — I’m an electrical engineer, but at the risk of putting my foot in my mouth, I’ll give my $0.02 anyway and practice civil engineering without a license. lol!
There is always the chance a basement could fail in an earthquake (i.e., although when I say “fail”, I suspect cracking would be much more likely than caving in). More likely though, I think the biggest risk of having a basement would be having the upper floors of a brick or masonry building collapse into it.
However, if it was a newer wood frame home, I would suspect the added risk of having a basement during an earthquake is minimal. In fact, my hunch is it would be riskier to have a multi-story wood-frame home with no basement than a single story wood-frame home with a basement (as long as the home was bolted to the foundation) — but that’s just my educated guess.
You really should consult with a civil engineer to be sure though. 😀
Hey Len. I totally agree with you, in your situation earthquake insurance really isn’t worth the money. I think it’s difficult for many people to imagine a time where they need earthquake insurance. For a few, it might be worth the investment, but for most I’d say pass on it. 🙂
Interesting. Is the private company insurance more expensive than the state’s?
When I was a practicing advisor people would always ask about these types of policies. Then I’d ask them about disability and long term care insurance coverages (which people file claims against at a rapid rate) and they’d want nothing to do with it. We’ll make sure we have cat insurance but take risks with our biggest assets: our ability to earn an income and keep our nest egg protected. Truly frustrating.
As earthquakes is the frightening fact of life. This is very important to take it before any loss. This post is very much useful for me. But till now also I am not getting the difference between the earthquake insurance and the home insurance. Please help me in it so that I will also apply for that. Thanks.
I live in Christchurch, New Zealand. We lost our house in the 7.1 and 6.4 major earthquakes nearly two years ago. We had total replacement insurance. It took us 18 months of haggling and fighting to get plans drawn up for a new dwelling. Land prices have sky rocketed, it cost us a lot more to buy a new section, since our old one was deemed not suitable any more by the Government. Hopefully we can start building next month. Here in Christchurch thousands of people are still in limbo regarding earthquake cover. Insurance companies are dodging their responsibilities everywhere. Nothing moves fast. Hurricane Katrina comes to mind.
A couple considerations, the average amount of loss doesn’t tell you the risk of a total or near total loss. Homes nearer the epicenter will suffer far more damage than those on the periphery. The wider area of moderate damage will drag down the average. Second, the Northridge and Loma Prieta quakes are not the two largest in CA history and do not represent the top end of what’s predicted. The “big one” is predicted to result in $200 billion in damages compared to $20 billion in Northridge. In CA, the big one is not a matter of “if” but “when” and is considered overdue.
Third, construction type and dwelling age are factored into the premium so in a sense your actual risk of damage is already factored into the premium and is theoretically neutral between different home types based on cost/risk.
Lastly, EQ insurance is to protect your assets. If you have little or no equity in your home your exposure might boil down to the damage to your credit to walk away. If you have substantial equity, then that’s really what you need to protect.
You made many curious comments. Where should I begin?
“The average amount of loss doesnt tell you the risk of a total or near total loss.”
Of course it doesn’t. But it is a good approximation of what rebuilding costs have been across a long timeline in past major earthquakes.
This is a good one too: Earthquake insurance is meant to “protect your equity”?
What???? Your primary residence is a place to live. Period. The primary reason you buy insurance is to cover what you can’t afford to pay on your own if a risk is realized. If a home has gobs of equity, that extra value is mainly applied to the land it is built on, not the house — so in that case, why bother with earthquake insurance? After all, if you have that much equity in the land, why not take your chances and then, in the off chance that the BIG ONE does come and turn your home into a pile of rubble, get a loan secured by your valuable equity-rich lot? Location, location, location!
And this one: “Your actual risk of damage is already factored into the premium and is theoretically neutral between different home types based on cost/risk”?
Okay … so?
Earth quake insurance are so high and i do not think that is a wise decision to make. Instead we should invest in building quality houses which will stand earth quakes
Great point, Joshua. The best part of that statement is, a basic wood frame home that is bolted to the foundation is both earthquake resistant and extremely economical.
Earthquake insurance would be great in California, but I was literally quoted about $300-$400/month in premiums, and that just seems WAY too high. Unfortunately, the company even wanted me to insure our land, which does not make sense to me at all given that the land is not going to be destroyed (because unlike the movies, the ground beneath our house is not going to split open, chances are at least). Anyways, I tried to get them to insure just the renovation or replacement costs, but they wouldn’t so I didn’t buy any. Any suggestions?
Find a new insurance company, Gajismo. Only the structure should be covered and rates run about $500 to $600 per YEAR, not month.
In the east coast U.S., insurers have added hurricane exceptions to homeowner policies. There’s a 25% deductible on coverage. And, of course, the question of whether the home is damaged by wind or water. If it is a flood, you need flood insurance, too.
Fun fact – Following the 1906 San Francisco earthquake, Lloyds of London underwriter, Cuthbert Heath, instructed all Lloyd’s claims to be paid in full, irregardless of policy terms. This move cost the company something like $1.3 billion in 2017 dollars.
Earthquake is a highly correlated risk. Probability of you filing a claim is highly correlated to a whole section of the city filing a claim. So, it makes actuarial sense that earthquake premiums are very high.
And to add to this, your logic doesn’t make sense.
Im pretty sure that if we restrict ourselves to non-earthquake related losses, there is hardly ever a total loss on homes as well, i.e. the average claim cost will be pretty low averaged over all the claims.
I went to III to see what the home owner risks are. 5% is the claim filing rate and 43K is the highest pareto item for fire and lightning, followed by 22K for theft/prop damage and 8K for flood related. All of these are lower than 59K number you quoted for North Ridge.
If I may extend your logic, you should not be paying a higher-than-839$ number of 1100$ to insure your home against these types of threats whose average claim is lower than the threat that needs 839$ of protection money. Right?
My logic is sound. You are supposed to buy insurance only for the things you cannot afford to replace. Period. No reason to go off into the weeds on the incidence of minor claims — they’re irrelevant.
I can afford $40,000 of damage to my home; it would be painful, but I can cover it. On the other hand, I can’t readily afford $300,000 to cover a total loss. So the decision comes down to my assessment of the probability of a catastrophic event striking my home that leads to a total loss. I buy home owner’s insurance to cover the risk of a catastrophic loss due to fire; I have determined the risk of a catastrophic fire completely destroying my home to be at least an order of magnitude greater than the risk of an earthquake doing the same thing. (No pun intended!)
You can insure yourself against any thing you are afraid of causing you losses you cannot manage. I’m cool with that.