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Curbed University: What's Up With Earthquake Insurance?

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Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a house or apartment. Additional questions welcomed to la@curbed.com.

It's not exactly a secret that the ground in Southern California is prone to shaking violently every now and then, and yet the vast majority of homeowners do not have earthquake insurance. All companies that provide homeowners' insurance are required to also offer earthquake protection, but more than 80 percent of Californians turn it down because it's often both expensive and not very comprehensive--an unappealing combination. To understand why, you need to look back to the aftermath of the Northridge Earthquake in 1994. Claims after that quake came out to $12.5 billion--more than insurance companies had ever collected in earthquake premiums in the state of California. In response, the state set up the California Earthquake Authority, which provides the majority of earthquake policies here (even if you get your insurance from another company, chances are they're selling a CEA policy). But CEA policies aren't designed to replace all your stuff and make your house like new in the event of a 'quake, they're just intended to get a roof over your head. So how does it work?

Earthquake insurance premiums vary widely depending on a number of factors:
-- Your zip code
-- When your house was built
-- Type of construction (wood frame, brick, etc.)
-- Type of foundation, and whether the house has been bolted to it
-- Insured value of the house and contents (if you include contents insurance)
-- The deductible

To compare two hypothetical $500,000 wood frame houses in 90027, one built in 1950 and the other in 2000, annual premiums would come to $945 and $662 respectively for a bare bones policy. The same policy for a house built with any other construction material in any year comes to $1,796.

CEA offers deductibles of 10 and 15 percent, so when you consider the value of your house, you'll see that you could still be stuck with a very big bill if your home suffers major damage. It's understandable that so many homeowners decide to take a risk with earthquake insurance. The state is trying to take steps to make the policies more attractive, including lowering rates; new policy types were introduced last year.

Whether signing up for a policy makes sense depends on a bunch of factors, some of which can be pretty personal, like your risk tolerance or your attachment to your credit score. Without a policy or the savings to help you rebuild after serious damage, you could decide to walk away from your wrecked home and let the bank foreclose. You could also do a little research into how your neighborhood is predicted to fare in a 'quake, looking at a shake map (like the one at the top of this post) or examining the state's Department of Conservation seismic hazard maps. These maps show fault lines and what areas are prone to liquefaction, a condition that can greatly increase the likelihood of major damage in an earthquake. In LA, liquefaction zones (pdf) tend to overlap with the LA River floodplain and the bottoms of canyons, but are not limited to those areas. But remember that just because your neighborhood looks to be at lower risk, and your house has survived 'quakes in the past, it doesn't mean you don't have to worry. This is still earthquake country.
· California Earthquake Authority [Official Site]
· Curbed University [Curbed LA]