Why the Affluent should consider Earthquake Insurance.
Why Older Owners of Homes should Consider Earthquake Insurance
Why Earthquake Insurance Becomes more Useful as you pay down your Equity
Have you faithfully been paying down the mortgage on your primary home over the past 15 years? Just starting to feel like you are getting ahead?
Be careful, you may be at an increased danger of losing your hard fought principal balance in your home if you live in earthquake country. Although paying off your home is generally a good thing, there are new issues to be aware of. How is that exactly?
As you carefully pay down you mortgage loan and become more affluent, you slowly accumulate a”nest egg” within your nest (in your home.) However, many people expect to tap that equity when they hit retirement either by selling the home, refinancing, or possibly through a reverse mortgage.
But as you accumulate funds in your home, you need to make sure they are properly protected. Your home insurance (homeowners) should be rock solid, with a highly rated and respected insurance carrier. It should be on the broadest coverage form possible. However even the most broad form of home insurance excludes two main perils. These two perils, both can be covered under separate forms: Flood and Earthquake. Flood insurance should certainly be considered, and in high risk flood zones, it is often required by the lender. But Earthquake insurance is not required by banks. Therefore I find that it is rarely if ever considered.
Time to Consider it Again:
15 years ago, earthquake insurance was rarely sold and pretty expensive. Times have changed. Earthquake insurance for most structures can be purchased through the California Earthquake Authority (CEA) and through several standalone earthquake insurers such as ICAT, Geovera, Palomar, and Arrowhead. There are more. These companies are now openly competing for your business. The landscape is slowly changing. Higher deductibles, separate deductibles, and extended coverages for things like pools have really made it more affordable and customized.
What is your Nest Egg worth to you?
If you really are expecting to retire on the equity in your home, you need to be defensive. The best defense for a home, is good insurance. California has had many devastating earthquakes in the past and likely will have more to come in the future. Although homes are built in accordance with much more stringent rules and safeguards, no home, regardless of what you may believe, is impervious to all earthquakes. Destruction of your home could take years to rebuild and involve costs far exceeding your wildest expectations based on the concept of Demand Surge. What is Demand Surge? Demand surge is the principal of costs spiraling up as resources become more limited due to the size and scale of an event. Think its difficult to hire a contractor now? Wait till half the town has been torn to shreds by a big quake.
Destruction Not Complete:
Many people falsely believe that just because your home is not destroyed by an earthquake all will be well. Unfortunately from past earthquake experiences, even if an earthquake does not destroy your home, if may just slightly knock the foundation around and trigger what is known as a Red Tag situation. If your home is red tagged by a local government official, your home will have to be fixed before you are legally allowed to reside there again. Do you and your spouse have enough money to rebuild your foundation? AND live in a hotel for two years?
How to Protect Yourself:
Many homeowners are under the belief that your best defense from an earthquake is to use your money to retrofit your home with the latest technology. Bolting your home to the foundation, plywood, and the like. Others believe that their money is best spent with Earthquake Insurance. However both of these strategies involve doing something to protect your investment from a known calamity. Simply ignoring it will not allow the future problem to go away. A large earthquake in California is coming. I personally and professionally believe that the best defense is to do BOTH”: retrofil your home up to modern standards AND purchase an earthquake policy with the maximum deductible that you can afford.
A little preparation on your part can potentially prevent a poverty stricken retirement. Consider all your options to assist in protecting your nest egg.
Notes: Speak with a licensed contractor in your state when considering making earthquake renovations to your home. Likewise when considering adding, changing, or cancelling any insurance policy – always speak with a licensed agent in your state or jurisdiction. Insurance rules, regulations, and coverage forms can vary from state to state.
Johnson is an independent insurance broker based in Marin County, California. He is licensed to solicit and service insurance solely in the State of California. CA License 0H11625.