Monday, November 19, 2012

Is Earthquake Insurance Worth It?

To Buy - or not to buy - that is the question when it comes to earthquake insurance. According to a recent LA times article, Rethinking Your Stance on Earthquake Insurance, only 15% of Californian's own an earthquake specific insurance policy - that leaves 4 out of 5 homeowner's without it. Let's take a look at what the article states as the most common reasons why people avoid purchasing earthquake insurance and how those reasons stack up to the facts.

Is Buying Earthquake Insurance Worth It? Top Reasons People Don't Buy Insurance
  1. Denial. One of the #1 reasons people don't buy earthquake insurance is because they feel The Big One will never happen to them. For many, who are raised in California, this rationale is even more common because unless you lived in the Bay Area in 1989, or Northridge during the 1990s, your life has been "major earthquake free." But in recent years, adding up the earthquake, tsunami, and hurricane victims around the planet, there is more reason to assume that indeed, something disastrous could happen in your lifetime. So how prepared do you want to be?
  2. Extra Money. A good amount of people wouldn't buy auto insurance or home owner's insurance if it weren't required by lenders. Plus, it's an added expense for an event which may not happen; why waste the extra money? This reasoning isn't too far off. Take the example of MSN money partner, Len Penzo. He looked into earthquake insurance for his Southern California home, worth a little over $300,000. He was quoted an annual premium of about $500 (his homeowner's insurance is already around $800/year). The deductible would be 15% of the total structure's cost - meaning Len would have to have around $45,600 worth of damages to pay before the policy kicked in. When he reviewed previous claims from recent tumblers, he found the average claims amounts - after inflation adjustment - were less than his deductible. So his family is choosing to roll the dice. They live in a newer home, which is bolted to the foundation and built to current earthquake codes.
  3. FEMA Will Help Us. Ah, yes. FEMA. Well, you may not want to gamble on that one. FEMA has its own set of operational issues to date. Plus, as the aforementioned LA Times article sites, increasing numbers of natural disasters creating catastrophic results will eventually cause law makers to put a halt to the amount of federal funds which can be used to rebuild and repay. Law makers are becoming especially impatient at sending relief funds to those who don't have the proper insurance for their geographical location. So this reasoning scores a point in the "consider earthquake insurance" column.
When it comes right down to it, you need to do the math. If you live in an older home, without proper retrofits, an earthquake insurance policy might be worth it. If you own a newer home, and have less equity on the table, you may want to consult your accountant about whether or not it really makes sense.

1 comment:

  1. We should think that everything is important in our home. We should take care of it to ensures the safety of our family. This is where we live and we should assure its safety with the help of insurance company.

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