Chartwell Insurance Services is based in Chicago and most of our fellow-Midwesterners feel earthquakes are only an issue on the West Coast. This is a misconception. There is a risk of earthquake in other parts of the country. We have clients who have elected earthquake coverage in Illinois, and clients with homes elsewhere in states such as Utah and South Carolina who are often surprised to learn about the significant earthquake activity in those areas.
The Federal Emergency Management Agency (FEMA) distinguishes between Very High Risk states such as California, High Risk states such as Illinois and Moderate Risk States such as New York. (see Appendix below).
Unlike a “conventional” physical damage loss where the policyholder typically is responsible for a single deductible, when earthquake coverage is provided the deductible usually applies separately to the structure and to the contents, increasing the policyholder’s assumption of risk.
Earthquake deductibles can range from as little as 2% to as much as 25%, depending on the insurance company’s assessment of the exposure. A high deductible means the policyholder is essentially “self-insuring”a significant part of the risk. The extent of earthquake coverage varies by insurer. Some insurers will cover only the structure but not the contents; some offer little or no additional living expenses. As always, it is important to read and understand the policy provisions with the assistance of your agent. Note that earthquake deductibles are applied against the value of the property insured, not against the amount of the loss. For example a 2% deductible for a $1,000,000 structure means that the first $20,000 of any earthquake loss would be borne by the policyholder.
Earthquake coverage for the structure is almost always excluded from the basic homeowners policy and so needs to be added at the specific request of the policyholder. This is also true for scheduled valuable articles in Very High Risk states. If chosen, the coverage would appear on the coverage summary or on an endorsement to the policy. However in merely High Risk states such as Illinois, most insurers do not automatically exclude earthquake coverage from scheduled valuable articles coverage.
Conventional valuable articles coverage usually has no deductible, but for earthquake coverage a deductible may be offered by the insurer as a premium saving device, or in some cases it may be mandated. In addition, many insurers in lower- risk states do not exclude earthquake coverage from contents coverage or from condominium policies.
Earthquake coverage can be extremely costly in Very High Risk states – sometimes as much as 500% of the homeowners premium. In lower-risk states earthquake insurance typically adds as little as 5% to 20% of the homeowners premium. If you would like to know more about earthquake coverage and how it might affect your asset protection planning, please contact us.
1. Some Very High Risk states: California, Hawaii, Montana, Nevada, Oregon, Washington, Wyoming. Some High Risk states: Illinois, Indiana, Missouri, South Carolina, Tennessee, Utah. Some Moderate Risk states: Colorado, New York, North Carolina. www.fema.gov/hazard/earthquake/risk.shtm.
2. Assessing the earthquake risk. Some interesting websites are available, in particular: www.earthquake.usgs.gov which shows all recent earthquake activity in the U.S. Activity in the Western part of the U.S. is predictably heavier than elsewhere in the country but there is significant activity in downstate Illinois and in Maine.