Understanding Earthquake Insurance: A Practical Guide

Earthquakes can cause catastrophic structural damage, foundation failure, fire, and business interruption. Yet most standard homeowners and commercial property insurance policies exclude earthquake damage.

Earthquake insurance exists to address this gap. This guide explains how earthquake coverage works, what it covers, how deductibles function, and when it may be appropriate.

---

What Is Earthquake Insurance?

Earthquake insurance is a specialized property insurance policy that provides coverage for damage caused by seismic events. It is typically purchased as:

• An endorsement to a homeowners policy
• A standalone policy
• A commercial property add-on

Coverage applies to direct physical loss resulting from earth movement.

---

What Problem Does Earthquake Insurance Solve?

Earthquake insurance addresses the financial risks associated with:

• Structural damage from ground shaking
• Foundation cracking or collapse
• Wall, roof, and framing damage
• Fire following earthquake
• Damage to personal property
• Loss of use (if included)

Without earthquake coverage, these losses are usually uninsured.

---

What Is Considered an Earthquake?

For insurance purposes, an earthquake typically includes:

• Ground shaking caused by seismic activity
• Aftershocks
• Volcanic tremors (in some policies)
• Earth movement directly caused by seismic events

Standard policies exclude “earth movement,” which includes landslides and sinkholes unless specifically covered.

---

Who Typically Needs Earthquake Insurance?

Earthquake insurance is most relevant for:

• Homeowners in seismic regions (e.g., California, Pacific Northwest)
• Commercial property owners in fault-prone areas
• Businesses with significant structural investment
• Condominium owners (for contents and improvements)
• Property owners unable to absorb catastrophic rebuild costs

Even moderate seismic zones may present meaningful risk.

---

How Does Earthquake Insurance Work?

At a high level, earthquake insurance works as follows:

1. A property owner purchases earthquake coverage.
2. A seismic event occurs.
3. Damage is assessed and documented.
4. A claim is filed.
5. Covered repairs or rebuilding costs are paid, subject to deductible and policy limits.

Deductibles are typically calculated as a percentage of the insured value, not a flat dollar amount.

---

Key Coverage Components

Most earthquake policies include:

• Dwelling Coverage
  Covers structural damage to the building.

• Personal Property Coverage
  Covers belongings damaged during the earthquake.

• Loss of Use / Additional Living Expenses
  Covers temporary housing costs if the home is uninhabitable (if included).

• Building Code Upgrade (optional)
  Covers costs to bring property up to modern codes.

Policy options vary significantly by carrier and state.

---

Deductibles: A Critical Feature

Earthquake insurance deductibles are usually:

• Percentage-based (e.g., 5%–25% of insured value)
• Applied separately to dwelling and contents

For example, a 15% deductible on a $500,000 home equals $75,000 out-of-pocket before coverage applies.

High deductibles are common in earthquake coverage.

---

What Earthquake Insurance Typically Does Not Cover

Common exclusions include:

• Flood damage caused by tsunami (requires flood insurance)
• Pre-existing structural issues
• Normal settling or cracking unrelated to seismic events
• Land or landscaping damage
• Vehicles

Coverage details must be reviewed carefully.

---

State-Specific Programs

In some states, specialized programs exist:

• California Earthquake Authority (CEA)
• State-backed or quasi-public programs in certain regions

These programs may standardize coverage and pricing.

---

What Affects the Cost of Earthquake Insurance?

Premiums are influenced by:

• Location and seismic risk zone
• Construction type (wood frame vs masonry)
• Age of building
• Retrofitting and reinforcement
• Coverage limits
• Deductible percentage selected

Wood-frame homes typically cost less to insure than unreinforced masonry structures.

---

Risk Mitigation and Retrofitting

Insurers may consider:

• Foundation bolting
• Cripple wall bracing
• Seismic retrofitting
• Reinforced construction techniques

Risk mitigation can improve insurability and potentially reduce premiums.

---

Smart Questions to Ask an Agent

When evaluating earthquake insurance, consider asking:

• What is the deductible percentage?
• Does coverage include loss of use?
• Are aftershocks covered?
• Is building code upgrade coverage included?
• How does this interact with flood coverage?

These questions help clarify financial exposure after a major event.

---

When Earthquake Insurance Makes Sense — and When It Might Not

Earthquake insurance makes sense if:

• You live in a seismic risk zone
• You have significant structural investment
• You cannot absorb a major rebuild cost
• Your mortgage lender requires it (in some cases)

It may be less critical if:

• Seismic risk is extremely low
• Property value is modest and replaceable
• You are financially prepared for catastrophic repair costs

For many homeowners in high-risk areas, earthquake coverage is a strategic financial decision.

---

Cheat Sheet

---

Key Takeaway

Earthquake insurance fills a major exclusion in standard property policies. Because earthquake damage can be catastrophic and deductibles are high, property owners must understand both seismic risk and out-of-pocket exposure before deciding whether coverage is appropriate.