Very few people in California actually purchase earthquake insurance. This may sound strange, especially since so many people believe that California will fall into the ocean someday, due to a giant earthquake. In part, this is because the insurance is too expensive. However, that could change, if a bill is passed into law.
I live in California. I’ve been here for a little over five years now, and I have never purchased earthquake insurance. When the recent earthquake hit Japan, followed by a tsunami, I had a few of my relatives from the Midwest telling me that I should come “home”. However, since I really hate the snow, and the cold, and since where I live in California has neither of those annoying weather conditions, I intend to stay put.
According to statistics I found in an article from the New York Times, only about 12% of the homeowners in California are paying for earthquake insurance. For most people, the insurance is just too expensive. It often comes with high deductibles, too. This means that if I were to buy earthquake insurance, and an earthquake were to damage my home, I would end up paying out of pocket for the necessary repairs anyway. Most earthquake insurance doesn’t kick in until the damage incurred costs at least 10% to 15% of the value of the home that the insurance is connected with.
I live in a mobile home that just might be older than I am. My best guess is that even if an earthquake opened up the earth directly beneath my home, and swallowed it in it’s entirely, the cost won’t come close to what I would need to meet in order to have the earthquake insurance help me.
Honestly, even if I had extra money lying around that I could put towards earthquake insurance, I still wouldn’t do it. I would instead use that hypothetical money to see if I could find a health insurance policy that I could actually afford. Right now, I have no health insurance at all, just like so many other people in California.
From what I can understand, it sounds as though the premiums are so incredibly high for earthquake insurance because of the potential risk. The insurance company has to have a huge reserve of money set aside, just in case a huge earthquake hits. If that happens, they will have to pay large sums of money to their customers.
This could change if a bill by Senator Dianne Feinstein and Senator Barbara Boxer passes into law. The bill would have the state government issue bonds that are guaranteed by the federal government. Insurance companies could charge lower premiums, and rely on those bonds if a big earthquake causes mass devastation. I’ve no idea if this bill will pass, but it’s an interesting idea.
Image by San Jose Library on Flickr