Where I live, about an hour from San Francisco, you have to think about getting earthquake insurance. I've always had it. But I looked into it again for our new house because the insurance is absurdly pricey. I learned, to my surprise, that most people in earthquake territory don't buy earthquake insurance. This made me wonder who the bigger fools were.
There are two popular schools of thought. One is that your house is (often) your biggest asset, and you can't take a chance of losing it. If you live in earthquake country, the odds of a Big One are high. Therefore, if you can afford the insurance, but can't afford to lose your home, you insure. And if you are only buying relief from your own worries, that's worth something too.
The other school of thought says that earthquake insurance is so pricey, and the deductibles are so high, there are only two realistic outcomes after the Big One:
- The earthquake damage is less than your deductible.
- The damage everywhere is so bad that your insurance company can't pay
Your earthquake insurance would only be useful in the event that your home was destroyed while your neighbors' homes were fine. You have to ask yourself what special risk your home has. If it was built recently, the answer is probably not much risk at all. In fact, I've never heard of a new home in the suburbs being destroyed by an earthquake. How do you calculate the odds of something that has never happened?
You could squirrel away a lot of savings by not paying for earthquake insurance for 30 years. That could add up to six figures. You have to include that money in your calculation when you compare how much you would lose if a quake smites your house.
Few companies offer earthquake insurance. That's a big red flag, since the business model mostly involves taking huge amounts of money from people and giving them nothing in return. I assume most insurers stay out of that field because they know that if there were massive earthquake losses, they would have bigger problems than a bad fiscal quarter. Correct me if I'm wrong, but I don't think Warren Buffett's insurance companies offer earthquake coverage. That means a lot of people who know more than you about insurance believe that Insurance companies can't even protect themselves if a big earthquake hits.
I give you a final data point before asking your opinion. We had a little 4.2 quake a few weeks ago. The neighbors felt a good wiggle in their homes. Our home, which has all the latest government-required anti-earthquake engineering, didn't move at all.
Would you buy earthquake insurance if you lived in California and your home was relatively new?