Roughly Half Of All Earthquake Damage Is Due To Shaking

Category: Finance, Insurance.

Imagine driving up to your home and finding nothing but a mass of wreckage.

For the vast majority of homeowners, the answer would depend on the cause of the damage. Could you afford to repair or rebuild your home? If the devastation was the result of fire, explosion, wind, or an automobile accident, then the cost of repair would be covered by standard homeowner insurance, which most lenders require homeowners to have until the mortgage is paid off. Standard homeowners insurance covers some damage caused by earthquakes, but not all. If the damage was caused by an earthquake, the answer could, however be quite different. The only way to be certain that the damage would be covered would be to carry earthquake insurance. Most hit the West Coast, earthquakes have struck, but since 1900 in 39 different states, causing damage in all 5The Federal Emergency Management Agency reports that earthquakes cause$ 4 billion in property losses each year, ranking just behind floods( $2 billion in losses) , hurricanes( $4 billion in losses) , and fires( $6 billion in losses) .

More than 5, 000 earthquakes occur in the United States each year. Earthquakes cause damage in two ways: directly, or shaking, through earth movement. Roughly half of all earthquake damage is due to shaking. And indirectly, by triggering other destruction. The other half is due to indirect damage, such as when natural gas leaking from a broken line ignites and starts a fire, or when water, for example flooding out of a broken pipe destroys walls, or personal property, ceilings. Damage due to shaking, is not, however. Indirect damage is covered by traditional homeowner s insurance.

The motion of an earthquake can cause serious damage to a home. Tile work also is at risk. Brick and stone structures such as chimneys, and walls are, fireplaces particularly vulnerable to shaking. Many homes, especially in the western states, are built on concrete slabs. Foundations are also susceptible to cracking and shifting. The shockwaves of a powerful earthquake cause the ground to undulate, cracking the slab. Even if the home is left standing, it might be" red tagged, " or condemned as unsafe for habitation.

A strong earthquake can wreak havoc with personal property as well. In extreme cases, the house might have to be torn down and the foundation repaired or replaced. The movement of walls and cabinets can send expensive electronics crashing to the floor. Sculptures and glassware can fall over and break. Artwork and photographs can become dislodged and fall. Many homeowners take care to secure loose objects, but if a cabinet or entertainment center collapses, the contents likely will be damaged. Insurance companies stopped writing earthquake insurance in California after the 1994 Northridge quake, but the state legislature stepped in and passed a law requiring property insurance companies doing business in California to offer earthquake insurance on a limited basis through the California Earthquake Authority( CEA) .

Insurance against earthquake damage is available as an endorsement to an existing home owner insurance policy or as an entirely new policy. Through a combination of private premiums, and sound investments, taxpayer support, the CEA has a fund of more than$ 8 billion to pay out claims, should a major earthquake strike. Restricted to living spaces, these policies often are referred to as" mini- policies. " Rates for earthquake insurance vary widely, depending on a home s location, and construction type, age. To limit the cost of claims, the CEA- backed policies cover dwellings only, fountains, not pools, patios, or decks. For obvious reasons, homes located near fault lines cost more to insure than those further away. For example, 40- year- old lumber will be drier and more likely to crack than lumber that is only a few years old.

Older homes cost more to insure than newer ones because they have fewer earthquake- resistance designs and because the materials used to build them lose their flexibility over time. Similarly, brick homes cost more to insure than wood- frame homes, because masonry is less flexible than wood and less able to" roll with the punches. " Earthquake insurance deductibles are calculated as a percentage of the home s replacement cost. The higher the deductible, the less the insurance company pays in losses, so the lower the premiums. Deductibles range from 2 to 20 percent of the replacement cost. Many homeowners accept a higher deductible in order to keep their premiums low. For example, a 20 percent deductible on a home that costs$ 300, 000 to rebuild would mean that the homeowner is picking up$ 60, 000 of the costs. Opting for a higher deductible can be risky, however.

When most homeowners think of paying tens of thousands of dollars for something, they often think of tapping into their home equity. A home with$ 60, 000 or more in damage will not be worth as much as it was before the quake. The problem with paying for earthquake damage is that the home equity will be wiped out along with the house. Homeowners with high deductibles will be out a lot of money, but those without insurance will be out even more. They will, have a mortgage, however to pay. Not only will they have no home equity, they will have no insurance benefits to pay for repairs or reconstruction.

The chances of being hit by an earthquake may be slim, but the financial exposure is great- too great to ignore the protection afforded by earthquake insurance.

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