The USGS maintains a very comprehensive website detailing the natural hazards faced by residents of the U.S. Most of the hazards they list, such as earthquakes, volcanoes, and landslides, are those which would commonly be excluded from your home insurance policy. According to the USGS, 39 states are exposed to earthquake risks, affecting 75 million people. Standard home insurance policies contain very clear exclusions for earthquakes and associated seismic events. The typical exclusion found in your policy will exclude all forms of “earth movement,” which can include earthquakes, landslides, mudflows, mudslides, sinkholes, subsidence, and erosion. Policies can go even further to exclude volcanic explosion and lava flow as forms of earth movement. With these types of broad exclusions, you should consider that California residents are not the only homeowners who face meaningful earth movement exclusions in their home insurance policies.
Given the broad, nationwide risk exposure, you may be wondering how you can find insurance for earth movement if all typical home insurance policies exclude it. Even though it’s not automatically included in regular home insurance policies, you can purchase it as a separate coverage from homeowners insurance companies. The cost will vary depending on the risk exposure and the level of coverage you select. Similar to insurance coverage for other high-risk exposures (such as windstorm in Florida), earthquake insurance comes with a deductible that is based on a percentage. Instead of a fixed dollar amount, the earthquake deductible varies depending on the total limit that you have insured. You need to consider how much of an impact this will have on you in the event of a claim, as you will need to suffer a fairly large loss before any insurance is available to compensate you. One important aspect of earthquake coverage is the additional living expense coverage. Since it’s possible that you may not be able to live in your damaged home for quite some time, having insurance cover your expenses for alternative living arrangements can be very beneficial.
California earthquake coverage is similar to that of other states, except that it’s financially supported by a special agency known as the California Earthquake Authority (CEA), which was set up to help insurance companies offer coverage to California homeowners. After the 1994 Northridge earthquake, most home insurance companies refused to offer coverage in California, leaving homeowners exposed to tremendous financial risk. The CEA was created as a resource to help the insurance companies pool and share their risk. This allowed them the financial security to write insurance in California, which in turn enabled homeowners to trust that their insurance companies would be there to pay claims in the event of a catastrophic earthquake.
Regardless of whether you live in California or another state, you should consider the exposures you have that are excluded by the earth movement exclusion on your home insurance policy and investigate the possible solutions to cover them.