Brace yourself for an earthquake

FCW's Friday Financials column provides a reminder that many more homeowners and renters should carry earthquake insurance

The earthquake that rocked Seattle in February was an unsettling reminder that many homeowners and renters should carry earthquake insurance.

Despite living in an earthquake-prone region, less than one-third of homeowners in western Washington carried earthquake insurance, according to the Insurance Information Institute. Even in California, which is notorious for earthquakes, only 17 percent of homeowners carry earthquake insurance, according to the California Earthquake Authority.

Not worried because you don't live on the West Coast? Earthquakes occurred in four out of every five states during the 20th century, and roughly 90 percent of Americans live in areas vulnerable to earthquakes. For example, although most people wouldn't think of the Midwest as a hotbed of seismic activity, residents in southern Illinois; Memphis, Tenn.; and the St. Louis area live atop the New Madrid Fault, a region that in the early 1800s experienced one of the largest earthquakes in U.S. history.

To assess the risk of an earthquake in your area, check with your insurance carrier and your local building code authority.

What if the possibility of an earthquake is a real one in your area? First, be aware that earthquake damage, like flood damage, is not covered in a standard homeowner's policy. You will have to buy a rider, or endorsement, to your policy specifically covering earthquakes, and you'll pay extra for that coverage.

The same goes for renters. Renters often forget to buy renter's coverage for their personal possessions in the belief they are covered by the landlord's policy. Not so. Even if the landlord has earthquake insurance, the policy won't cover damage to a renter's personal possessions. Interestingly, however, automobiles typically are covered under the comprehensive portion of a standard auto policy.

Earthquake insurance can be expensive, although costs vary significantly not only among regions of the country, but among carriers within regions, so careful shopping can reduce the cost. In Missouri, for example, costs might run from $36 to nearly $300 per $100,000 in value for a masonry home, depending on the carrier. In Oregon, those costs would run about $245 to $280; and it would be $250 to $320 for a similar home in California. Generally, brick homes are more expensive to insure than wood homes. A wood home, for example, might cost only $53 to $58 per $100,000 to insure in Oregon.

In addition to premium costs, policies often carry a high standard deductible of 5 percent to 10 percent, and, in some cases, 15 percent. For example, a 10 percent deductible would mean $30,000 out of pocket for a demolished $300,000 home. The deductible also applies to your home's contents. Still, as expensive as it is, the expense of not insuring your home at all against earthquakes could prove far more costly.

Review what the policy will cover in the event of an earthquake. Will it cover only the home, or include structures such as a garage, deck, hot tub and swimming pool? Is landscaping covered? Are contents and additional living expenses covered?

Read any limits or exclusions carefully. Be sure it covers the full replacement cost of the dwelling and your possessions, not merely their fair market value at the time of the quake. And clarify the percentage of the deductible exactly.

You can help yourself by inventorying the contents of your home, says Dennis Filangeri, a certified financial planner based in San Diego.

"Write down the value of property, or use a computer program, and take videotapes or photos," Filangeri said. "Store the inventory in a safe place, such as a safe-deposit box, away from your property."

This is a good idea to prepare for any type of damage to your property, such as fire or flood.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at miltzall@starpower.net.

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