Earthquake insurance explained: a beginner's guide

Earthquakes are the peril the four states think about least and, in three of them, should think about more. The Wasatch fault runs under the most populated corridor in Utah. Nevada is among the more seismically active states in the country, with faults under Reno and through the ranges east of Las Vegas. Central Idaho produced one of the larger quakes in the lower forty-eight in living memory and shook Boise again more recently. Arizona is quieter, though the Flagstaff and Yuma areas have their own history.

None of that exposure is covered by a homeowner policy. Earth movement, which includes earthquake, landslide, subsidence and sinkholes, is excluded on every standard form, and so is the damage that follows it, with one exception for fire. Earthquake coverage is a separate purchase, structured differently from the home policy it sits beside. This guide explains the structure, works the deductible arithmetic that decides whether a claim pays anything, and offers a way to decide.

How the coverage is bought

Earthquake coverage comes in two forms: an endorsement added to the homeowner policy by the same carrier, or a stand-alone policy from a specialist carrier, which may be admitted or in the surplus lines market. Unlike California, none of the four states has a state-established earthquake insurer, so the market is entirely private and availability varies by carrier, by county and by year. Some homeowner carriers offer the endorsement freely along the Wasatch Front; others decline it there and offer it only where the exposure is low, which is the opposite of useful.

Either form covers the same things the home policy does, subject to its own limits: the dwelling, other structures, contents and additional living expenses while the house is uninhabitable. The limits usually mirror the home policy's, though a stand-alone policy lets you choose lower ones to manage premium. The one thing the home policy already covers is fire following an earthquake: if a quake breaks a gas line and the house burns, the fire loss is a home policy claim, and the earthquake policy pays only for the shaking damage that preceded it.

The percentage deductible: the number that decides everything

An earthquake deductible is not a flat sum. It is a percentage of the coverage limit, applied separately to the dwelling, the other structures and the contents, and it is large. The carrier sets a range, and the premium falls sharply as the percentage rises. The consequence is that the policy pays nothing for moderate damage, cracked drywall, a toppled water heater, a broken chimney, and pays substantially only when the house is badly damaged or destroyed. That is by design: the policy is catastrophe coverage, not repair coverage.

Suppose the dwelling limit is $500,000 and the earthquake deductible is ten percent, so $50,000. A moderate quake cracks the foundation and shifts the house on its cripple walls, and the repair estimate is $40,000. The policy pays nothing; the loss is below the deductible. A larger quake does $300,000 of damage; the policy pays $250,000. Had the deductible been set at twenty percent to lower the premium, the second claim would pay $200,000 and the first would still pay nothing. Those are hypothetical figures, but they show the decision: the deductible is the amount you are choosing to self-insure, and it should be a figure you could actually absorb.

Two variations matter. Some policies apply a single deductible to the combined loss rather than separate ones per coverage, which is better for the insured. And some allow the contents deductible to be waived when the dwelling deductible is met, which avoids a second large subtraction.

What is and is not covered

The covered items mirror the home policy; the exclusions are specific to earth movement and are worth reading twice.

• Covered: structural damage to the house from shaking, including foundations and framing; damage to other structures if that coverage is bought; contents broken or crushed; and the cost of living elsewhere during repairs.
• Usually excluded or limited: masonry veneer, chimneys, and unreinforced masonry walls, which some policies cover only to a small sublimit because they are the first things to fall.
• Excluded: the land itself, including fill, grading and retaining walls; swimming pools and spas; driveways, walkways and fences; and landscaping.
• Excluded: flood and tsunami following a quake, which is a flood policy question, and in the region an unlikely one except for dam failure.
• Excluded: damage from settling, cracking or shrinking unrelated to an earthquake, and pre-existing structural defects.
• Excluded on some forms: loss caused by an earthquake that begins before the policy takes effect, and a series of shocks within a stated period is treated as one event, so the deductible applies once and the limit applies once.

Construction, soil and the retrofit that changes the quote

The premium and the carrier's willingness to write depend on how the house was built and what it sits on. A wood-frame house bolted to a continuous concrete foundation with braced cripple walls performs well and rates well. An older house sitting unbolted on its foundation, a house with an unbraced crawl space, a soft first storey over a garage, or any unreinforced masonry construction rates poorly or is declined. Manufactured homes need bracing systems to be insurable at all with some carriers.

Soil matters as much. Deep, saturated, sandy sediment can liquefy under shaking, turning briefly to something like liquid and letting foundations sink or tilt; parts of the Salt Lake valley and areas near the Great Salt Lake are mapped for that hazard, and the carrier's rating reflects it. A seismic retrofit, bolting the sill plate, bracing cripple walls, strapping the water heater, is a modest project on many houses and earns a premium credit with many carriers, as well as reducing the damage that would fall inside the deductible. Ask what the carrier requires and what it credits before scheduling the work.

Condominium owners and renters

A condominium association's master policy may or may not carry earthquake coverage on the building, and if it does, the association's deductible is assessed to the unit owners after a loss. A unit owner's policy can add earthquake coverage for the interior, the contents, and, importantly, loss assessment, which pays the owner's share of the association's earthquake deductible. Read the master policy before assuming the building is covered. A renter can buy contents-only earthquake coverage, often as an endorsement to the renters policy, and for a renter with a large collection of fragile things in Salt Lake City or Reno it is cheap enough to consider.

A decision rule

Earthquake insurance is worth buying when a total loss would be financially unrecoverable and the premium is small relative to the house's value, which is the case for most owners with a mortgage in a mapped fault zone. It is worth weighing carefully when the house is older and unretrofitted, since the premium will be high and the deductible will swallow most plausible damage. It is reasonable to skip in areas with little mapped exposure, and we say so when the address supports it. The useful comparison is the annual premium against the deductible amount: if a decade of premiums roughly equals the deductible, the policy is protecting only against the largest event, and the question is whether that event is one you could survive without it.

How to use this

Gather the dwelling limit from the home policy, the year the house was built and whether it has been bolted and braced, the foundation type, and the mapped fault and liquefaction status of the parcel, which county planning offices in Utah, Nevada and Idaho publish. From those we can obtain quotes at several deductible percentages from the carriers we represent, including the endorsement from your existing carrier if it offers one, and show what each would pay on a moderate and a severe loss. The right answer for a well-built house on firm ground in Arizona may be no policy at all, and that is a legitimate result of the analysis.