When you think about earthquakes, the first thing that typically comes to mind is California. What you may not know, is that earthquakes are only one of several natural disasters that most standard homeowner’s insurance policies do not cover. To make matters worse, most people think that as long as they don’t live in California, they don’t need to invest in earthquake insurance.

The reality, however, according to Chairman of the Property and Casualty Committee of the National Association of Insurance Commissioners, Michael T. McRaith, the risk of earthquakes spread far further than most are aware of. He states, “There is exposure to earthquakes throughout the country. Different states have different sources for consumers, but there are significant faults in parts of the country, and it’s important to know your risk.”

The U.S. Geological Society publishes and continually updates Seismic Hazzard Maps. These maps show the location of most of the fault lines running throughout the country. Along with this, homeowners can access the U.S.G.S website for information regarding the risk of serious seismic activity where they live. They can always use the site to see if there has been any recent seismic activity in their area.

Typically, you can buy earthquake insurance from the same agent you purchased your homeowner’s insurance from. If you live in California, you can purchase coverage through the California Earthquake Authority. Coverage costs average between $1.50 and $3.00 per square foot and have a deductible in the range of 5 to 25 percent of your home’s current value.

Whether you should buy earthquake insurance or save your money can be hard to determine according to the executive director of United Policy Holders, a San Francisco based consumer advocacy group, Amy Back. Their research found that only 10% of those who own a home in California have earthquake insurance. Back says she feels the reason for this could be the high cost of premiums and high deductibles.

For example: Your policy has a 15% deductible and a maximum payout limit of $500,000 (common in CA). Your coverage won’t start paying out until the damage to your home goes over $75,000. So, if the damage to your home is $100,000, the insurance company is going to send you a check for $25,000. If your annual premium is $3,000 and you have paid it faithfully for ten years, you will have paid more in than you will be getting out.

However, one reason earthquake insurance premium are as high as they are is because, while earthquakes are low-frequency, they are high peril events. Meaning the likelihood of an earthquake causing maximum damage is fairly high when an earthquake happens. Most likely the damage would be closer to the total payout limit of our example. If the policy paid $425,000 (500,000 less the 15% deductible of $75,000), it would take more than 140 year of the $3,000 premium payments to break even with the claim amount paid. This is the risk insurance companies take when providing certain coverage limits for certain premiums.

Your final decision should be based on the risks in the state you live in, your current financial status, and any other consequences you may face. It is possible, that despite the high cost of earthquake insurance it might be there to protect your investment.

Are you an agent looking to offer your insured’s more options for earthquake insurance? Flow Insurance Services knows earthquake insurance, and we know it well. Place your trust in us and let us help you to write more business. When it comes to growing your business, things can be challenging. Embrace the opportunity of earthquake insurance!