Earthquake Insurance, Seismic Retrofit or Both?

Mark StraussBusiness | Commercial Insurance

With most insurance carriers there is no price break for earthquake insurance when a home is retrofitted to the foundation, , it only allows you to qualify to purchase earthquake insurance.

Here is some advice, your money might be best used on having a seismic retrofit done to your homes in lieu of securing earthquake insurance. Why? Earthquake insurance deductibles work as a stated percentage of the limits of your home insurance policy. Deductibles typically range from 2%, 5%, 10%, 15%, 20% & 25%. This contrasts to a standard home insurance policy that has a fixed dollar amount such as $500 or $1,000 for claims such as fire and theft.

Most insurance companies split earthquake policy deductibles into separate categories such as:

  1. the dwelling;
  2. other structures,
  3. personal property, and;
  4. additional living expenses

If you had to file an earthquake claim you would be responsible to pay the appropriate deductible towards each category.

For example, if you had earthquake insurance in place with a 10% deductible and your home is insured for $400,000, other structures insured at $40,000, and personal property insured at $280,000 you would have to pay the following towards each category for reimbursement of your earthquake claim.

  1. Dwelling, you pay the first $40,000 in repair or replacement costs before the insurance company will pay for the remainder of the repairs that are necessary.
  2. Other Structures, you pay the first $4,000 in repair or replacement costs before the insurance company will pay for the remainder of the repairs that are necessary.
  3. Personal Property, you pay the first $28,000 in repair or replacement costs before the insurance company will pay for the remainder of the repairs that are necessary.
  4. Additional Living Expenses, protections vary among each insurance carrier. Some will offer a benefit without a financial cap others might provide a maximum limit of $25,000. Review your policy to see what protections are available to you.

The cost of a retrofit is dependent on how many connections you make from the sill plate to the foundation in addition the overall footprint of the home. Based on a typical Portland home with a full unfinished basement I would estimate it would probably cost you between $3,000 – $5,000 to retrofit your home to the foundation. I recommend contacting a seismic retrofit contractor to give you an estimate on what it would cost to bolt your home to the foundation, I refer my all my clients to Portland seismic retrofit company Earthquake Tech.

My home is bolted to the foundation and I do not carry earthquake insurance. Why? When the earthquake happens I anticipate that my home will sustain damage but because of the footprint of the home, the strength of the foundation, and the amount of seismic connections made to the foundation I believe that the damage incurred will be less than what I would pay towards an earthquake insurance deductible.

With that being said risk is a personal matter. The following rules of risk management should be applied when it comes to your consideration of whether or not purchase earthquake insurance or bolt your home to the foundation:

  • Don’t Risk More Than You Can Afford To Lose | This is a measure of severity. If the maximum possible loss could not be paid out of your existing finances without necessitating borrowing or if such a loss might lead to bankruptcy then insurance must be considered.
    • Does my home qualify for earthquake insurance?
    • What financing is available for me to seismically upgrade my home?
  • Consider The Odds | What is the probability that a loss will occur?
    • The State of Oregon is designated as an area with a ‘very high seismic hazard’ and ranks third in the nation for earthquake damage estimates in the future. Projected losses in the Cascadia region alone could exceed $12 billion, with over 30,000 destroyed buildings, and 8,000 lives lost in the event of a magnitude 8.5 Cascadia Subduction Zone earthquake. Wang, Yumei and J.L. Clark. 1999. Earthquake Damage in Oregon: Preliminary Estimates of Future Earthquake Losses. DOGAMI: Special Paper 29.
  • Don’t Risk A Lot for A Little | After weighing the cost of insurance or a seismic retrofit compared to the potential out-of-pocket expense. Don’t self-insure a loss that could be transferred to an insurance carrier or a loan from a bank for a known amount of money.

This article is intended for informational purposes only and is not insurance advice or a substitute for consultation with a licensed insurance broker to address your particular risk or circumstance.