How Much Does The Homeowner Pay On This Old House Earthquake Insurance in California

You are searching about How Much Does The Homeowner Pay On This Old House, today we will share with you article about How Much Does The Homeowner Pay On This Old House was compiled and edited by our team from many sources on the internet. Hope this article on the topic How Much Does The Homeowner Pay On This Old House is useful to you.

Earthquake Insurance in California

When the water started draining from New Orleans in 2005, we learned that most homeowners in New Orleans did not have flood insurance because they were supposedly in “low risk” areas. More than 60% of property owners will have to rely on their own savings and limited federal assistance to rebuild New Orleans, at an incalculable cost to property owners and taxpayers.

Could this level of disaster, especially that level of uninsured disaster, happen in California? Less than 15% of California homeowners currently have earthquake insurance, due to its high cost, the “it can’t happen to me and my house” factor, and mortgage providers not requiring coverage. The next big earthquake will result in billions in uninsured damages, but is earthquake insurance really worth the high cost?

How did we get here?

The state of California requires all homeowner’s insurance providers to offer at least earthquake insurance (albeit at a high cost). Until 1994, it was widely available, but the high costs of Northridge earthquake damage caused 97% of homeowner’s insurance providers to leave the state of California. In response, the California legislature created the California Earthquake Authority to provide earthquake insurance.

What is the California Earthquake Authority and how does it work?

The California Earthquake Authority offers two-thirds of earthquake policies in California, sold through its member providers, such as Allstate and State Farm. A homeowner purchases the policy through their regular insurance agent, but the policy is actually a CEA policy.

The CEA currently has about $7.2 billion to pay claims, which it claims is enough to pay for foreseeable damages (Loma Prieta in 1989 had $6 billion in total damages). If damage claims exceed $7.2 billion, then each claim will be paid a prorated portion of their losses, unlike a regular insurance company, which agrees to pay actual damages under the insurance policy . The State of California cannot avoid paying claims out of general funds.

The policies also have a high deductible, typically 15% of the home’s value. In other words, your home must suffer more than 15% of its value before the insurance starts paying out. So this insurance is not for cracks in the driveway, but for major structural damage to your home. The policy also pays for limited contents (starting at $5,000) and loss of use (starting at $1,500).

Why is earthquake insurance so expensive?

Insurance policy premiums are calculated based on probabilities: the likelihood that a house like yours in a neighborhood like yours will catch on fire or a driver like you will have an accident. With data from millions of homes, these probabilities can be calculated with reasonable accuracy. But no one can reliably predict the likelihood of an earthquake strong enough to damage your home.

And as you can imagine, damage from an earthquake, flood, or hurricane is widespread, potentially thousands of square miles, rather than just one or a dozen homes, as in a fire. As such, the insurer would have to pay zero claims or billions of dollars of claims, too much variation to plan reasonably or price accurately.

Are we really at risk here in San Jose?

According to the USGS, there is a 62% chance of an earthquake of magnitude 6.7 or greater (like the Northridge earthquake) in the Bay Area in the next 30 years. In my zip code (San Jose 95126), the USGS estimates an 80% chance of a 6.0 earthquake, and a 20% chance of a 7.0, in the next 30 years. Whether you consider it a high risk depends on your risk tolerance for earthquakes; I consider a high risk of a moderate earthquake, and a somewhat low risk of a terrible earthquake, within the next 30 years.

But like anything related to real estate, everything is local. Where your home is actually located significantly affects your risk: bedrock, reclaimed bayous land, soil type, nearby streams, actual distance from the epicenter can all affect potential damage.

But of course, many earthquakes occur where the USGS was not even aware of a fault line, and we never know when or where it will happen, until it does.

Should I get earthquake insurance?

Factors to consider:

  • Can you afford to pay for your home rebuild with your own savings and investments?
  • Can you afford to pay the high cost of insurance, indefinitely?
  • Could you make payments on your current mortgage and a new loan to rebuild?
  • Can you mitigate your potential losses by fixing your roof to the walls and the walls to the foundation, for example?
  • What is your earthquake risk tolerance?
  • What are the risks of your current construction (type, age, foundation)?
  • What are the risks in your specific location (soil type, distance to known faults)?

Are the costs worth it?

Let’s say you own a home that would cost $250,000 to rebuild, you’ll own the home for the next 30 years, and your earthquake premiums are $1,200 per year. Over the next 30 years, that would be a total of $36,000 in premiums (assuming your premiums don’t increase, to simplify the calculations).

Instead of buying insurance, invest the premiums in a diversified mutual fund. With an annual return of 8%, you’d have $135,000 (before taxes) in year 30.* But of course, you only have that total in year 30, not the first, i.e. if the earthquake happens tomorrow, you won’t. i don’t have the money

The deductible is another big disadvantage for many homeowners. Insurance only pays for major structural damage, not broken plates or cracked driveways, which means you’re less likely to use it. However, keep in mind that you don’t have to come up with the cash for the deductible; you can choose not to bear these repair or reconstruction costs, or you can apply for an SBA loan to pay the deductible (assuming a federal disaster). the area is declared).

Why not get federal help or “walk away” and let the bank own the property?

The federal government would likely provide access to SBA loans, if the area is declared a federal disaster area (small business not required). However, the maximum $200,000 SBA loan may not be enough to rebuild your home, and it is a loan you must pay back (in addition to your current mortgage).

If you’ve refinanced your mortgage, you have a recourse mortgage, which means the bank can not only foreclose on the property in the event of default, but can also go after your personal assets and future income in case of non-payment. . So you can’t leave, especially if you have a good income and some personal assets. The bank can help by deferring payments for a few months, but you still have to pay back the loan.

Last thoughts

We have earthquake insurance on our home. Our house was not yet built in the 1906 earthquake (so who knows if it would hold), is over 75 years old and not connected to the foundation, and we have a refinanced mortgage. For my family, the insurance premiums are worth the peace of mind in the event of a major earthquake. That’s exactly what insurance is for – the “you never know”.

*Calculations ignore inflation

Video about How Much Does The Homeowner Pay On This Old House

You can see more content about How Much Does The Homeowner Pay On This Old House on our youtube channel: Click Here

Question about How Much Does The Homeowner Pay On This Old House

If you have any questions about How Much Does The Homeowner Pay On This Old House, please let us know, all your questions or suggestions will help us improve in the following articles!

The article How Much Does The Homeowner Pay On This Old House was compiled by me and my team from many sources. If you find the article How Much Does The Homeowner Pay On This Old House helpful to you, please support the team Like or Share!

Rate Articles How Much Does The Homeowner Pay On This Old House

Rate: 4-5 stars
Ratings: 7606
Views: 11266404

Search keywords How Much Does The Homeowner Pay On This Old House

How Much Does The Homeowner Pay On This Old House
way How Much Does The Homeowner Pay On This Old House
tutorial How Much Does The Homeowner Pay On This Old House
How Much Does The Homeowner Pay On This Old House free
#Earthquake #Insurance #California

Source: https://ezinearticles.com/?Earthquake-Insurance-in-California&id=145161

Related Posts

default-image-feature

How Much Does The Cast Of This Old House Make Healthy & Helpful Tools in the Kitchen

You are searching about How Much Does The Cast Of This Old House Make, today we will share with you article about How Much Does The Cast…

default-image-feature

How Much Melatonin Can I Give A 6 Year Old The Gnostics and Essenes

You are searching about How Much Melatonin Can I Give A 6 Year Old, today we will share with you article about How Much Melatonin Can I…

default-image-feature

How Much Does The Body Shop Pay 16 Year Olds Love-Hate Relationship With A Car

You are searching about How Much Does The Body Shop Pay 16 Year Olds, today we will share with you article about How Much Does The Body…

default-image-feature

How Much Does The Average Ten Year Old Boy Weigh Fast Food Advertising to Children

You are searching about How Much Does The Average Ten Year Old Boy Weigh, today we will share with you article about How Much Does The Average…

default-image-feature

How Much Melatonin Can I Give A 1 Year Old Risk In Teenagers – Why Do They Take Work, Driving And Life Risks? Explanations Here

You are searching about How Much Melatonin Can I Give A 1 Year Old, today we will share with you article about How Much Melatonin Can I…

default-image-feature

How Much Does The Average Ten Year Old Boy Way The Latest Child Abuse Statistics

You are searching about How Much Does The Average Ten Year Old Boy Way, today we will share with you article about How Much Does The Average…