Wednesday, November 16, 2011

Thinking About Earthquake Insurance

The recent earthquakes in Virginia and Oklahoma have caused me to give consideration to earthquake insurance.  Our current homeowner's policy does not cover damage from earthquake.  Since we live in a low probability, but not zero chance, earthquake zone, I have not seriously considered getting earthquake insurance.  However, both Virginia and Oklahoma were also low probability zones, which has caused me to worry a little more.   Here are my reasons for considering earthquake insurance:

  • Repairing earthquake damage would cause significant hardship.   Since we are retired, it would be difficult for us to pay for significant damage to our home, e.g. over $100,000.    We would not be able to borrow the money since we don't have a regular job and such an amount would significantly reduce our savings accounts.

  • Insurance cost is low.  The annual premium would be  0.03% the value of our house which seems reasonable.   Thus, the cost for 20 years would be only 0.6% the value of our house.   For perspective, the additional earthquake premium is less that the insurance premium of 6 months of one car.  However, it would increase our homeowners insurance by about 14%.

  • Taking earthquake insurance wouldn't fully protect us since the deductible is at least 5%. So there would always be some out of pocket cost for repairs.   However, we would be protected from significant unplanned costs, which is what we can't in retirement. 

    I'll be doing a some more research on earthquake probability for our region befor making a decision to proceed with earthquake insurance.
    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.
    This is not financial or insurance advice. Please consult a professional advisor.

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