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Earthquake insurance: Expensive but worth the cost?

by AirTalk®

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General view of the Marina district disaster zone after an earthquake, measuring 7.1 on the Richter scale, rocks game three of the World Series between the Oakland A's and San Francisco Giants at Candlestick Park on October 17, 1989 in San Francisco, California. Otto Greule Jr/Getty Images

The recent earthquakes that shook Southern California also rattled the nerves of some homeowners who will be left with huge bills if a really destructive quake were to strike. Earthquake damage is not covered under regular homeowner's insurance and the vast majority of Californians don't have separate policies to protect them in case of damage to their homes.

The California Earthquake Authority estimates that 90 percent of Californians aren't covered in case of quake damage. That may be because earthquake insurance policies tend to be pricey and typically don't kick in until the homeowner has paid around 10-15 percent of the home's value in deductibles.

Most Californians aren't willing to shell out the hundreds of dollars a year, on top of a hefty deductible, to protect against the remote possibility of an earthquake causing severe damage.

So is earthquake insurance worth the cost? Why is it so expensive? If the 'Big One' does hit — will most Californians be left in financial ruin because they're not insured?

Interview Highlights

Glenn Pomeroy,  CEO of California Earthquake Authority

  • “In a high-risk area, [earthquake insurance] is not inexpensive, and that’s because the risk is not insignificant.”
  • “I think it’s a misperception to assume that the federal government is going to come in and make everybody whole again after a natural disaster. Ask the victims of Katrina; ask the victims of hurricane Sandy; look at the nightly news in terms of the devastation in those communities that still exist because people didn’t have, in many cases, their own financial strength to rebuild and recover.” 

Kathy Kristof, Los Angeles-based personal finance columnist and contributing editor to Kiplinger's Personal Finance

  • “What bothers me is that the California Earthquake Authority Policies are so limited that I’m not sure they would pay off if you did have a quake.”
  • “If you remember the Northridge quake, what did you lose: chimneys, walls, china, crystal, all that sort of stuff, right? Those things are all specifically excluded from the California Earthquake Authority policy with the exception of paying up to $5,000 to replace your chimney… All the things that historically we’ve seen have significant damage, are not covered. The only thing the earthquake policy would cover for you is if your house slid off the foundation and really had extensive damage.”

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Have you invested in earthquake insurance. Why or why not? 

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