November 14, 2011 by staff
California Earthquake, The 5.6-point Oklahoma earthquake — the strongest in recorded history for that state — underscores the harsh reality that fires, storms and floods are not the only perils that can damage or destroy your home. And it doesn’t matter where you live. In fact, the Oklahoma quake was the third major quake to shake an area where earthquakes are rare. Virginia and Colorado also felt major quakes this summer. California, of course, is the nation’s highest-risk area and is considered long overdue for a major shaker.
But while there’s little question that you should insure against the risk of fire, deciding whether or not to buy earthquake coverage is tougher. That’s because the coverage is costly and varies in many significant ways from other types of homeowner’s coverage.
The most important thing to note: Quake coverage is not included in a standard homeowner’s policy.
How does this coverage differ from traditional insurance? Here are 8 facts you need to know.
Deductibles: The amount of money you have to shoulder without help from insurance is called a “deductible.” With a standard homeowner’s policy, you decide on the amount in dollars. In other words, you can choose a $500 deductible or a $2,500 deductible. A higher deductible will land you a lower annual premium payment. But, with traditional homeowners insurance, you can make sure you never set your deductible at an amount that would be unaffordable when you have a claim.
With earthquake coverage, your deductible is based on a percentage of your overall policy limit. If the structure of your home is insured to $500,000, the quake insurance deductible will typically amount to 15% of that, or $75,000. In some cases, you can choose a lower deductible — say 10% of the structure limits — but this deductible will almost always be set as a percentage of the policy limit. In some states you can find deductibles as low as 2% of structure limits, but the deductibles are higher in the states where earthquake risk is highest, such as California, Washington and Oregon.
Personal possessions: If your home is consumed by fire, you’d not only be reimbursed for the cost of replacing the structure, you would get insurance payments to reimburse you for the loss of all the contents of the house to a set threshold – usually 50% to 70% of the structure limits. So a homeowner with a $500,000 structure limit would typically get up to $350,000 in contents coverage on top of the losses sustained to the structure of the home. With earthquake coverage, contents are typically covered only to a set dollar amount, such as $5,000. To some degree, that’s logical — your sofas and beds are unlikely to be destroyed in a quake, as they are in a fire. However, if your big-screen television and computers are broken in a quake, the coverage is unlikely to reimburse you for the damage, unless you opt for increased contents coverage.
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