What is the need of earthquake insurance?
Insurance against earthquakes is perhaps one of the most prevalent yet still one of the most ignored type of insurance available on the market today.
Its high prevalence rate is primarily based on it being compulsory for office buildings or commercial structures with certain features (such as those made of laid brick, with a height greater than 10 floors). At the same time, it is constantly being ignored by homeowners and proprietors of structures which do not meet the minimum criteria for this type of insurance to be compulsory.
On one hand, homeowners ignoring this type of insurance is somewhat understandable. Earthquake insurance, like all other major disaster insurance, is very useful in case of total damage to the structure.
Homeowners with sturdily-built houses are far more likely to ignore this type of insurance because of that, since the insurance coverage is lower (speaking in terms of relativity towards the total cost) if the degree of overall damage to the structure is lower. It is therefore considered that earthquake insurance offers too little compared to how much it costs.
On the other hand, the above is only an issue in highly earthquake-prone areas (California was an example, Japan being another one). Purchasing earthquake insurance in other areas can not only be extremely cheap, but it can also come as a supplement package with your home insurance. Where the risks are minimal, insurance companies will be a lot more willing to offer cheaper and more affordable packages for homeowners.
If you do decide to buy earthquake insurance, all the general insurance contract know-how applies as well. You will basically need to look for the same details, and a few extra that should come as obvious: how much is covered, what is the deductible? Does the policy fully cover the dwelling? Does it cover any annexes, such as garages, sheds, workshops? Will the insurance company pay for additional living expenses should your home be damaged to such an extent that life inside is impossible until repairs are complete? What are the exclusions? Are the available funds limited in any other way than through the actual insurance coverage sum?
In order to have a general idea about how much is insurance going to cost you, also take a look at the structure you are trying to insure against earthquakes. Consider, first, what it is made of. Laid brick walls are perhaps more desirable in terms of resale value, but they lag far behind the wooden walls when it comes to insurance. Indeed, houses made of logs or treated wood behave better than laid brick houses in earthquakes because of the wood’s natural capacity to curb better than brick, and, as a result, are less likely to receive damage. This translates in lower insurance rates for the homeowner.
Then, try and think about the area the house is located in. Areas are graded on a scale of 1 to 5 considering the likelihood of earthquakes and the earthquake history. A rating of 5 will be a strong deterrent for insurance companies to even consider a policy. A rating of 4 will persuade many to enter only short-term insurance policy contracts, with extremely high costs and, statistically, almost no return. A rating of 2, however, is likely to get you a very satisfactory and cheap policy for your home, whereas 1 or below (a “0” is assigned to areas in which earthquakes of magnitude greater than 2.5 on the Richter scale cannot occur) should be a strong deterrent for you to sign off a policy, therefore many companies offer packages of earthquake insurance included within a larger scope (such as general home insurance).
Remember to set a coverage sum that is enough for you to actually repair or rebuild your home. Under-pricing your home will get you a lower insurance rate, however, if something does happen, the insurance company will not be required to pay anything more than what was agreed upon.
Learn and understand your rights in terms of insurance, learn what the terms for applying, contesting and requesting insurance fund withdraw, then start requesting quotes and only settle down when you’ve found the one that suits you best. Always read the fine print and keep your rates constant, if possible. That way, the ground will never shake beneath your feet.