Tuesday, March 15, 2016

New Earthquake Insurance Options

According to the CEO of the California Earthquake Authority (CEA), less than 10% of homes in the state have earthquake insurance. This is not news, but why the figure should be so low in a state riddled with geological fault lines is something that has been discussed for years. In an effort to bring more homeowners into the coverage fold, the CEA is offering new coverage options this year. The main features of the new options, which are part of the CEA’s Earthquake Brace and Bolt program include:

  • Deductibles ranging from 5% to 25%
  • Increased coverage limits for personal property and for additional living expenses
  • Increased discounts for homeowners who submit proof of retrofitting their homes to achieve better earthquake protection
  • An expanded residential mitigation program that can provide up to $3,000 to owners of homes who are eligible for seismic upgrades.

Policies must be bought from participating insurance companies along with a homeowner’s insurance policy. One of the main reasons why people are reluctant to buy earthquake insurance has been that it was felt that deductibles and premiums were too high. The previous deductible options were limited to 10% and 15%. Now policy holders can choose from a variety of options ranging from 5% to 25%. The basic concept of the lower the deductible the higher the premium still applies. To put it in another way, a home with an earthquake insurance policy for $500,000 and a 10% deductible will have to suffer damage of $50,000 or more before the policy pays off. If the deductible is 5%, the damage must be $25,000 or more for the policy to pay out. Of course, the premium in the 5% deductible will be higher, even though the coverage is the same in both cases.

It’s Expensive, but Essential

The overall cost of earthquake insurance has not been reduced by the new program. However, with the option to go in for higher deductible, it is expected that the lower premiums will bring more homeowners in the coverage fold. If your home has been retrofitted, you are entitled to a 5% discount on your premium. If you get the improvements verified by a licensed engineer or contractor, you may be eligible for a higher discount, but note that the cost of the verification could be a few hundred dollars.

The improved coverage for personal property and living expenses is welcome. The personal property cover is now $200,000 which is double of what it was and living expenses coverage is up 4 times to $100,000. Once again, the increased overage option comes at a cost in terms of higher premiums.

What it boils down to is that the cost of earthquake insurance has not come down. However, there are now a number of coverage options and deductible choices that can make purchasing a policy more affordable. All this may seem to confusing. It will be a good idea to contact your insurance broker to find out how these changes could benefit you and how much they will cost.

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