Insurance and Real Estate : The Price of Not Having Protection From Quakes

Those of us who live in earthquake country have become so accustomed to occasional tremors that we have mentally discounted the damage they can do to our homes as well as to our financial stability.

During the 1971 Sylmar, 1983 Coalinga and 1987 Whittier earthquakes, many homes became total losses because of internal structural damage, even though some of those homes would have seemed to the casual observer to have only minor damage. Few of them were covered by earthquake insurance.

Admittedly, a very small percentage of homes are seriously damaged in any one earthquake, but can the average homeowner take the chance of having to pay for the damage? If your home is destroyed in an earthquake, and you do not have an adequate amount of earthquake insurance, you will still be responsible for paying off your loan. Can you afford to do that and rebuild? Most homeowners cannot.

The most common reason cited by homeowners for deciding not to purchase earthquake insurance is its cost. Depending on the age of a home and its proximity to known seismically active areas, earthquake insurance can increase the cost of homeowners insurance by approximately $200 to $400 for a home that would cost $150,000 to rebuild.

When my clients say they can’t afford it, I recommend that they analyze the costs and benefits by thinking about whether they can afford to buy something they don’t use each year for $200 to $400. Most say they could. Then I ask if they could afford to make a mistake that would cost them $150,000 to rebuild their house. To me, the decision is easy.

Curtis B. Smith is a multiple-line insurance agent in the West Los Angeles area.