Jonathan Edewards

Southern California Earthquake Risk Increases; Most Homeowners Uninsured

A sudden flurry of minor earthquakes at the tip of the San Andreas Fault has seismologists worried that the “Big One” could be triggered, the Los Angeles Times reports. In any given week, the normal risk of a major quake that would cause homeowners and commercial property owners in Greater Los Angeles to lose their properties is about 1 in 6,000, scientists estimate. This week’s swarm of quakes dramatically increases the risk of a major (7.0+) quake occurring within 7 days to as low as 1 chance in 100. Read the Los Angeles Times article here.

 

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Despite the annual warning notices that insurance companies mail to homeowners, most property owners have let their earthquake insurance policies lapse or have never purchased coverage, and would lose their home or business if an earthquake levels it. For the past decade, there have been few options to purchase earthquake insurance, and policies came with such high deductibles (15%) that homeowners were discouraged and opted to forgo coverage and take the risk.

In recent months, new earthquake insurance policies have become available with improved coverage.

Under the previous offerings, a 15% deductible meant that a home insured for $500,000 had to sustain at least $75,000 in damage for the policy to pay a claim; faced with the thought of having to pay the first 15% of their home’s insured value, many homeowner preferred to ignore the risk altogether.

(Notice that fine point: the earthquake deductible applies to a % of the insured value, not a % of the damage.) For example, if an earthquake hits a home insured for $500,000, and the earthquake causes minor cracking of the foundation and walls, and also results in water damage from a burst pipe, and that damage costs $100,000 to repair, the claim would be settled like this:

$100,000 repair cost – (15% x $500,000 insured value) = $25,000 claim payout.

New Earthquake Insurance Policies are closing the gaps in coverage that older policies contain.

The new earthquake insurance policies now offer lower deductible options: 5% or 10%. That means that homeowners can sleep better at night! It’s much more comforting to know that your earthquake insurance policy will pay the cost to rebuild or repair your house in the event of an earthquake without having to take a out a loan to cover the policy’s deductible.

In addition, some of the new earthquake policies now include substantial coverage for swimming pools, walkways, driveways, patios, and retaining walls. Most earthquake policies limit coverage on those items to just $3,000 or so. Clearly, $3,000 would not be sufficient to replace a swimming pool or a lot of paving/decking. The new policy options can take care of those items, too, if you are careful to purchase a policy that specifically provides that coverage.

For advice and help obtaining earthquake coverage for yourself or your business, contact Jonathan Edewards at Citrust Insurance at 626-765-4495 or GetHelp@Edewards.com.

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For advice and help obtaining earthquake coverage for yourself or your business, contact Jonathan Edewards at Citrust Insurance at 626-765-4495 or GetHelp@Edewards.com.

 

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Catastrophe in Japan raises Earthquake, Flood Concerns in California

As Californians watch the news coverage and YouTube videos of the devastating earthquake and tsunami that occurred in Japan, many have started to wonder, “Are we vulnerable, too?”

The geology off the coast of Japan is very different from the California coast, so an exact repeat isn’t likely.  However, California is certainly an earthquake zone, and much of Southern California and Central California is vulnerable to flooding.

The fact is: almost all property insurance excludes coverage for earthquake and flood.  That means that your homeowners or businessowners insurance policy will not reimburse you if an earthquake or flood (including tsunami) causes damage to your home or business.

And that exclusion extends to resultant damage, too.  For example, if an earthquake causes your property’s gas lines to rupture, or causes an overload to your electrical system, which sparks a fire, the resulting damage–burned buildings and burned contents–will not be covered by insurance.  The cause of loss in that example is earthquake.  The earthquake caused the fire, and the fire caused the damage to property. Even though fire–by itself–is normally covered, the fire was caused by the earthquake, and therefore all the damage falls under the earthquake exclusion.

Ditto for resultant damage from a flood.

Earthquake insurance can be purchased as a separate insurance policy in addition to your homeowners or businessowners policy.  Although earthquake insurance is very expensive (expect to pay about as much as your standard property insurance policy, or more), and typically will carry a high deductible, an earthquake insurance policy will offer you the reassurance that you won’t lose everything when the “Big One” hits.

Flood insurance, on the other hand, is very inexpensive, and every property owner should purchase a policy, even if the risk looks minimal.  The fact is that every property is located in some kind of a flood zone — it is just a question of whether it is a in a moderate-to-low zone or high risk zone.  About 25% of all flood insurance claims are from moderate-to-low risk areas.

Many property owners believe that in the event of an earthquake or flood, the government will step in and provide disaster assistance.  This is true, but only if the President declares a disaster, and even so, Federal disaster assistance is usually a loan that must be paid back with interest. For a $50,000 loan at 4% interest, the monthly payment would be around $240 a month ($2,880 per year) for 30 years, in addition to the mortgage loan that is still owed on the damaged property.

Insurance can be purchased quite easily, and it’s the best way to protect the time, energy, and money that you’ve invested in your property.