Earthquake insurance, Yes or No?

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Submitted by Alex_angel on October 16, 2007 - 11:43am

My wife has been doing some research on Home insurance. I am amazed at the cost of adding earthquake insurance. It litteraly doubles the monthly payment and they require a 10% deductible for it.

I have asked 5 people at work that own and none of them have earthquake insurance.

I'd appreciate any opinions on whether it is a suckers deal or not.

TIA

Submitted by XBoxBoy on October 16, 2007 - 12:04pm.

When I bought in '98 my realtor flat out told me, "don't buy it, if we have an earthquake and your house is damaged the government will come in and pay for reconstruction. Buying earthquake insurance is just throwing money down the drain."

Given all the other bailouts I've seen in recent years, I gotta say this encouragement to be irresponsible makes a lot of sense.

Submitted by desmond on October 16, 2007 - 2:27pm.

If you have substantial equity, get it, if not, let the house cave in and walk.

Submitted by NotCranky on October 16, 2007 - 2:43pm.

Make sure the Feng Shui is in working order and everything will be fine.

Did you buy a house Alex?

Submitted by FormerSanDiegan on October 16, 2007 - 2:43pm.

First, I wouldn't rely on a realtor's advice from 1998 to make insurance decisions.

Second, I tend to agree along the same lines as desmond. Depending on your other assets it may make sense to buy earthquake insurance under the following conditions:
1. You have substantial equity in your house.
2. The cost to replace the structure is significant with respect to the value of the property (land) and/or with respect to your non-RE net worth.

Submitted by NotCranky on October 16, 2007 - 3:06pm.

I would also consider how was the house built and what kind of features does it have,although I am not sure this matters if your house takes a direct hit. I am sure it does for home not at the epicenter of a large fracture.

Just an aside: We often talk about what housing would look like if there were no mortgages. Sometimes I wonder what people would be willing to buy if there were no insurance,especially cash buyers.

Submitted by zk on October 17, 2007 - 6:40am.

I'd say it depends where you live. Most parts of San Diego have much less potential for a quake of the size that would damage a wood-frame house than most parts of LA. There are maps on the internet that show what the odds are of any shaking intensity (the actual strength of the shaking in a particular location, measured on the Mercalli scale, as opposed to the overall strength of a quake, which is based on the Richter scale and doesn't really tell you as precisely how much shaking will be involved) in any location in Socal. I'd check those maps, see how seismically active your area is, and base your decision at least partly on that.

Submitted by Tuba on October 17, 2007 - 7:11am.

I would say No if it is a newer home.

Here is a great article about earthquakes related to our modern building standards with slab foundations and wood frame construction. Starts at pg.4

http://www.apawood.org/pdfs/managed/R240...

Submitted by Peace on October 17, 2007 - 9:19am.

When we were looking at real estate in the east we were well informed of the "flood" areas and assured it was no problem because the mandatory federally backed insurance was cheap - and that was true. Of course it encouraged people to go ahead and buy in flood zones (usually a little less expensive than non-flood areas).
So why doesn't the federal gov subsidize earthquake insurance? It certainly is a less predictable natural disaster than floods are. Some of the flood areas in the east flood regularly.
In San Francisco the only people I knew who had earthquake insurance owned condominiums because it is required in multi-dwellings. That is why HOA fees are so expensive in San Francisco.

Submitted by Alex_angel on October 17, 2007 - 9:24am.

Rustico, no I haven't purchased anything. My Wife's sister has asked but If I started the thread by saying "I'm looking for a friend" everyone would think I meant me. So instead I just asked the question point blank,

Submitted by XBoxBoy on October 17, 2007 - 9:36am.

The reason that the federal government doesn't subsidize earthquake insurance but does subsidize flood insurance has to do with politics. Some states receive lots more handouts (subsidies) while others receive far fewer handouts. If you are in a state that the politicians want to court, then your state will get lots of subsidies.

The states that win in this little game are those with few voters per electoral vote, and those that have close elections between democrats and republicans. California, where the earthquake insurance would be needed, is neither of these. We have way too many voters per electoral vote and we overwhelmingly vote democrat. That's also why the republicans hardly campaign at all in California in the presidential elections.

This also leads me to believe that many politicians (particularly senators) are not going to be very inclined to bail out the SoCal housing market. There's just nothing in it for them. They may allow lots of speeches and they might nod their heads approvingly, but getting something through the senate that helps mainly california is a tough task.

Submitted by lonestar2000 on October 17, 2007 - 12:48pm.

Don't expect a government bailout in leu of earthquake insruance, just look at New Orleans, people are still waiting for that check.

I agree with the general sentiment of the thread, if you have your own money in the balance and it is an older home, by all means get the insurance. If you bought with 100% financing and the home has newer earthquake avoidance techniques incorporated then you are probably ok without it.

It also matters what the home is built on. Loose sand makes for liquid like movement in an earthquake, not much survives that. In contrast, if the home is built on bedrock it will probably have much more limited movement during an earthquake and has a better chance of surviving intact.

In the end you have to weigh all the pros and cons and decide based on your tolerance of risk...kind of like investing in stocks, climbing rope, quality parachutes, filtered water, condoms, etc. :P

Submitted by Alex_angel on October 18, 2007 - 6:38am.

How many people do you guys know that own it? So far I haven't found one person at work that does.

Submitted by The-Shoveler on October 18, 2007 - 7:04am.

Nor_LA-Temcu-SD-Guy

I think the question to ask is your lot half fill / half Cut, Usually the view homes are built on half fill/half cut lots, if you have a hill in your back yard it is most likly a cut lot,

If I was sitting on a half fill /half cut lot then I would think about earthquake insurance.

I look for a view home on a cut lot when I look to buy a home myself.

Submitted by novice1027 on October 18, 2007 - 8:16am.

I have it, always have. It doesn't seem the expensive to me. I think I pay about $280/yr for it. Somewhere in that ballpark. I gives me peace of mind.

Submitted by mglsharkson on November 4, 2007 - 8:42am.

I been tempted to get it, owning a single family house close to the beach (PB). Living with a sand base means the house is toast if the big one hits. Before this house we live in North Park, i remember the old fashion weights slamming in the window frames in the early 90's quake. People called from the east coast because of watching the news with LA hammered. No other damage however. After growing up in LA with earthquakes happing all the time SD is rather quiet.

I remember my folks 2 story house in LA damage back in the 70's (mostly pool), not enough to trigger the deductible so it did not help. The insurance back then I believe was more liberal then today. Debris removal would make it worthwhile, I am going to have to check back into this.

mglsharkson

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