Earthquake insurance: Is it worth it?

To buy or not to buy earthquake insurance.

Two weeks after Haiti's devastating temblor, that question is on the front burner again. Whether you live in St. Louis or San Francisco, it's hard to ignore that gnawing feeling in your gut that not having the insurance could mean big problems in the event of the Big One.

Many homeowners, however, still hold off on purchasing insurance; in California, only 12% of owners with homeowners' policies also have earthquake coverage. Why? Denial, for one. And cost, for another.

The average rate for a policy purchased with the California Earthquake Authority -- a publicly-managed organization that provides Californians catastrophic residential earthquake insurance -- is $722 per year. About 70% of earthquake coverage in California is underwritten by CEA. Rates vary by region (if you live in L.A. or San Francisco, prepare to write bigger checks), proximity to a fault, type of home construction and other factors.

Even if you plunk down those big bucks for the extra insurance (all "catastrophic" coverage is extra, in addition to your homeowners insurance, whether for hurricanes or quakes), you still may have to pay a great deal more if the damage is significant. CEA doesn't pay a nickel until the structural damage is higher than 15% of the home's insured value; then it pays for damage to the structure and household items up to the policy limit (make sure you have enough coverage -- many homeowners don't). Your property (land and structure) may be worth $600,000 in the marketplace, but earthquake insurance covers only the insured value of your home, as stated on your homeowner policy.

Another reason for pause is that most earthquake insurance has high deductibles -- CEA's, for example, is either 10% or 15%; with increased-limit options, you can boost personal property coverage to up to $100,000. For many owners, that will not cover all the contents of your home.

Still, there is an upside to purchasing quake insurance, experts say. For one, 39 states have experienced temblors in the last century, according to the U.S.Geological Survey, and among natural disasters, earthquakes are the most costly from which to recover. Furthermore, 90% of Americans live in potential earthquake zones.

Even if your house survived the last big quake in your region, new, unknown faults often are discovered only after a new shaker rattles your town; surviving one quake doesn't mean you're immune from the next. Also, even if your home is built on bedrock and bolted to the foundation, you won't necessarily be spared damage in a large quake; outdoor walls, pools and windows still can be destroyed. Repairs involving engineering can run up to $50,000. Additionally, relying on federal funding and Small Business Administration loans still means borrowing and paying those loans back. And the old "I'll just walk away from my damaged home" philosophy means a foreclosure and often wrecked credit for years.

What it comes down to is, how much of your home investment are you willing to risk? You have to weigh the cost of annual premiums, deductibles and probable extra financial output for damage repair, against the cost of losing your home to a big temblor if you don't pony up for insurance. Then again, many earthquakes don't result in severe damage, so you may be able to handle the repairs out of pocket. It's a toss of the dice. Remember, though, that if you have a typical home loan, you'll have to pay for the rest of the loan even if your home is damaged or destroyed.

How do you get quake insurance? In California, homeowners, condo owners and renters can purchase CEA insurance only through participating commercial insurance companies, such as Farmers Group, State Farm, Mercury and the Calif. State Automobile Assn. (CEA's Web site provides a complete list of participating companies). You must have a regular homeowners' policy with those companies in order to get the additional CEA earthquake policy.

"If an insurance company offers homeowners insurance, they are required to offer earthquake coverage," says Jeffrey Spring, an Automobile Club of Southern California spokesman. Even if they aren't CEA participants. Companies not participating sometimes underwrite the earthquake plan themselves, or they refer you to other private companies that do.

Earthquake-coverage opportunities and rules vary by state, so check with your own state's insurance commissioner.

For more information about earthquake insurance, visit United Policyholders.

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