Hey Irvinites...you got Earthquake Insurance?

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IrvineCitizen_IHB

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Another thread triggered my memory. I read somewhere long ago that Earthquake Insurance is rarely worth it. I forgot the reasoning.



Do any of you Irvine homeowners carry it? I noticed in another thread that people's rent vs own calculations varied wildly due to HOA/Mello/Insurance assumptions.



My premium is something like $1000 a year for a ten year-old home. That covers like 275K on the structure. I carry no Earthquake but when I priced it out it was

crazy! Something like triple my rate.



All thoughts are appreciated....
 
[quote author="IrvineCitizen" date=1247211102]Another thread triggered my memory. I read somewhere long ago that Earthquake Insurance is rarely worth it. I forgot the reasoning.



Do any of you Irvine homeowners carry it? I noticed in another thread that people's rent vs own calculations varied wildly due to HOA/Mello/Insurance assumptions.



My premium is something like $1000 a year for a ten year-old home. That covers like 275K on the structure. <strong>I carry no Earthquake but when I priced it out it was

crazy! Something like triple my rate.</strong>



All thoughts are appreciated....</blockquote>


There you have the reason, it is too expensive. I heard that if a quake comes that wipes out your house, it is highly likely the company that provided the insurance will end up going BK anyway. It was also recommended to me once that in this scenario and if you owe a significant amount on your house, you'd be better off just walking away. If you incur minor damage you will most likely have paid enough to repair it yourself by the time you account for the costs of the policy and the deductible. I am definitely not an expert, these are just some of the reasons I have heard for not getting the coverage.
 
[quote author="IrvineCitizen" date=1247211102]Another thread triggered my memory. I read somewhere long ago that Earthquake Insurance is rarely worth it. I forgot the reasoning.



Do any of you Irvine homeowners carry it? I noticed in another thread that people's rent vs own calculations varied wildly due to HOA/Mello/Insurance assumptions.



My premium is something like $1000 a year for a ten year-old home. That covers like 275K on the structure. I carry no Earthquake but when I priced it out it was

crazy! Something like triple my rate.



All thoughts are appreciated....</blockquote>


It's rarely worth it because earthquakes are rare. It's definitely worth it if you use it, but you likely won't ever need it.
 
[quote author="tmare" date=1247211683]I heard that if a quake comes that wipes out your house, it is highly likely the company that provided the insurance will end up going BK anyway.</blockquote>


That's not true, all insurance companies need to hold substantial reserves and also use a lot of reinsurance. Huricanne Katrina was pretty devastating, but I don't know of a company that went BK because of it.
 
Earthquake insurance was cheap until 1994, the year of the Northridge earthquake. I lived within 5 miles of the epicenter back then and my place was pretty well trashed, although no structural damage. I had earthquake insurance, like all my neighbors, and we all made out fine. Then our insurance companies raised all our rates and deductibles through the roof...now no one carries earthquake insurance.



Living in Southern California, earthquakes are inevitable and I wish I didn't have to pay Russian Roulette hoping the Big One doesn't hit my area, but there is really no choice these days.
 
It is pricey compared to what you pay for regular homeowner's, but it's still only $400/yr here vs $550 for our standard insurance. The deductible is really high ($30K) but if something happens FEMA will give out no interest loans. I just figure that if a quake destroys the foundation, we'd be hosed without insurance for it.
 
Remember those USGS liquifaction charts that nobody wanted to look at?



That (plus your distance from a fault) plays a big part in determining earthquake insurance. Just something else to think about.
 
With any insurance, you should obtain it if the potential loss could be catastrophic to you. (The definition of catastrophic really depends on the individuals situation.) For example, a retiree in their 60's who owns their $800,000 house outright probably should have earthquake. If they have enough funds to self insure then I say risk it. But most would not be able to cover a $800,000 loss on their own.



People normally go about insurance all wrong. They buy the insurance that is most likely to be used. However, what you really need to cover is the black swans that you could not recover financial from. For example, most have short term disability insurance. A short term disability is something that you could probably weather. It would be hard but is it only for a short period. But what if you become disable forever and you and your family could never replace that income stream. That would be financial devastating. LT disability insurance is more expensive but that's were the real risk is.
 
[quote author="Roo" date=1247228758]all insurance companies need to hold substantial reserves and also use a lot of reinsurance......</blockquote>
I wouldn't bet my life on what it SHOULD be...
 
What if one of the <a href="http://www.msnbc.msn.com/id/7789918/">volcanos</a> in Yellowstone erupted, and cover up the sky of the entire Western United States for a couple of years, and cover the street in LA with a few inches of ashes? Will any kind of insurance covers that?



<img src="http://www.solcomhouse.com/images/fs2005-3024_fig_12.jpg" alt="" />
 
[quote author="Astute Observer" date=1247268996]What if one of the <a href="http://www.msnbc.msn.com/id/7789918/">volcanos</a> in Yellowstone erupted, and cover up the sky of the entire Western United States for a couple of years, and cover the street in LA with a few inches of ashes? Will any kind of insurance covers that?



</blockquote>


Who cares. You'll probably turn to dust like the people of Pompeii.
 
[quote author="Mcdonna1980" date=1247263303]With any insurance, you should obtain it if the potential loss could be catastrophic to you. (The definition of catastrophic really depends on the individuals situation.) For example, a retiree in their 60's who owns their $800,000 house outright probably should have earthquake. If they have enough funds to self insure then I say risk it. But most would not be able to cover a $800,000 loss on their own.

</blockquote>


Most $800,000 houses in Irvine would cost $100k-$200k to rebuild. A catastrophic earthquake could destroy the structure, but probably not the land.
 
Word to the wise about earthquake insurance. You got to really read through the policy to see what exactly is covered. There are a lot of worthless earthquake policies because they only cover you if you house is leveled. A bad earth quake will probably cause some significant structural damage but a complete leveling is unlikely for most. Even if your house is a complete loss and you have to rebuild some companies won't cover unless is it leveled.



I'm not endorsing this what so ever but I know of some people in the insurance industry that have a box of matches as their earthquake insurance.
 
[quote author="joeyp" date=1247271979][quote author="Mcdonna1980" date=1247263303]With any insurance, you should obtain it if the potential loss could be catastrophic to you. (The definition of catastrophic really depends on the individuals situation.) For example, a retiree in their 60's who owns their $800,000 house outright probably should have earthquake. If they have enough funds to self insure then I say risk it. But most would not be able to cover a $800,000 loss on their own.

</blockquote>


Most $800,000 houses in Irvine would cost $100k-$200k to rebuild. A catastrophic earthquake could destroy the structure, but probably not the land.</blockquote>


Now we're getting to the heart of it. Let's say you pay $1k a year extra for earthquake insurance. As stepping_up said, the deductible is high (30K). So you've paid this for 5 years and spent 5K on it and an earthquake hits and causes damage. It is highly likely that the damage will not cost as much as your deductible, so you cover it yourself. I have lived in OC for my entire 43 years and no home I've ever lived in has sustained ANY damage from an earthquake. If your house is a total loss, you will have to pay 30K (most likely have to get a loan), you will begin the nightmare of trying to get your insurance to rebuild your home and pay for your rental until it is rebuilt. My aunt's house burned down during the recent fires, it was awful, the insurance company was so overwhelmed with claims that it slowed everything to a snail's pace. My aunt's home was one of about 200, imagine what will happen if your home is one of, let's say conservatively thousands (tens of thousands, hundreds of thousands?), do you really honestly think that this insurance is going to be worth the paper it is written on? Remember, as was previously stated, the value of your home is more the land than the structure. Everyone has to make up their own mind, but I'm going to take my chances.
 
[quote author="joeyp" date=1247271979][quote author="Mcdonna1980" date=1247263303]With any insurance, you should obtain it if the potential loss could be catastrophic to you. (The definition of catastrophic really depends on the individuals situation.) For example, a retiree in their 60's who owns their $800,000 house outright probably should have earthquake. If they have enough funds to self insure then I say risk it. But most would not be able to cover a $800,000 loss on their own.

</blockquote>


Most $800,000 houses in Irvine would cost $100k-$200k to rebuild. A catastrophic earthquake could destroy the structure, but probably not the land.</blockquote>


You are right that you wouldn't have a loss that is the full market value. I didn't clearly think out what I was writing. I serious doubt you would only incur $100k-$200k of loss if you had to rebuild your house, though. What about the contents & the cost of rent while they are rebuilding? Or that the fact that rebuilding cost can soar after a major disaster. An $800,000 home is probably about 2600-2800 sq feet. At $100k-$200k you are telling me that is like $38-76 per sq foot to rebuild a 2600 sqft house. That doesn't seem right. Maybe for a builder. I'm sure someone in the building industry on here can give a better estimate. Or does anybody here know someone or had to rebuild themselves becuase of the 2007 wildfires in CA? Do a quick google search on the cost to rebuild after these fires. I found a lot $500,000 mentions. 75% of the policies holders were under insured by an average of $240,000 for those fires.
 
Tmare, do you know how much the cost per sq ft was to rebuild your Aunt's home? I'm sure it was a hassle but did the insurance company cover what they were suppose to?
 
I don't know the actual numbers, I'm sure I could find out. I do know that they covered the basics, she had just spent about 75K adding a 3rd bedroom, the electrical work for the addition hadn't even been completed yet nor had the final inspection. There was no way she could get the addition on her policy until it was complete, so that was a total loss for her because the company refused to pay for a third bedroom and she no longer had the money to build another. My point is more that the insurance was a complete nightmare and that was only when about 200 homes were affected. Have you read the stories of those who experienced the Northridge quake? It really seems that the likelihood of these companies going under is great if we have a significant and very damaging quake.
 
[quote author="tmare" date=1247275088]I don't know the actual numbers, I'm sure I could find out. I do know that they covered the basics, she had just spent about 75K adding a 3rd bedroom, the electrical work for the addition hadn't even been completed yet nor had the final inspection. There was no way she could get the addition on her policy until it was complete, so that was a total loss for her because the company refused to pay for a third bedroom and she no longer had the money to build another. My point is more that the insurance was a complete nightmare and that was only when about 200 homes were affected. Have you read the stories of those who experienced the Northridge quake? It really seems that the likelihood of these companies going under is great if we have a significant and very damaging quake.</blockquote>


Yeah, I'm sure a lot in the Northridge quake were shock to find out there insurance company would not cover their loss. Like I wrote before, you have to do your due diligence because some earthquake coverage is a joke.



I do know that many of the big insurance companies formed alliances to mitigate the risk of insufficient funds to cover losses. I don't work in the insurance arena so I have no sure way of knowing the financial capacity of an insurance industry if we bad a really bad disaster. I would say their capacity is quite large, though. Probably not large enough if most of CA was damaged. But I'd think they could handle a bad regional disaster. Plus, it doesn't take a state wide disaster to take out your home. It could just be a quake from one of the faults in the OC which doesn't seem far off. Like NoVas pointed out there are a lot of high risk areas in the OC.



My knowledge is limited as it is based on a few insurance classes and occasionally attendance of insurance seminars. In school my final project was investigating the Katrina claims. I found that the vast majority of insurers covered what they were suppose to cover. The problem was homeowners had many losses that they did not have insurance for. I think it is great if people want to self insure against an earthquake or whatever. I do have a problem with people that expect others to come to their rescue when sh*t happens.



I think your use of the nightmare is a little strong. I think a more fitting nightmare scenario would be if you just had $500,000 loss and no possibility of recouping it or covering the damages yourself. I think it is definitely stressful to deal with a claim especially after a major diaster but I wouldn't imply the insurance company was useless.
 
As for the cost to rebuild, I'm getting estimates around $190-285/sq.ft from insurance agents for a house we are considering to buy in Newport Coast. Even if you look at the tax assessments for most houses around here, it's usually 1/3 land and 2/3 additions, so I think it will cost way more than 100-200k to rebuild a typical house here.

I'm also getting quotes for earthquake (which seems not to be very high, around $300/yr for this particular house, as opposed to $1-1.2k for home insurance with $2.5k deductible), but these policies have deductibles around 10-15% of the total value, so the damage should be pretty severe for the policy to kick in.
 
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