Your Home’s Earthquake Deductible

When you purchase earthquake coverage on your home, the deductible—your portion of the claim—will be substantial. This is because an earthquake usually affects many homes in an area, which can be catastrophic for any insurer who insures a large number of them. High deductibles make it possible for insurers to provide coverage while managing their own financial stability.

Earthquake coverage, whether added to the homeowner policy or written as a separate policy, is subject to a percentage deductible rather than a flat dollar amount. Underwriters offer deductibles based on several risk factors, including distance to fault lines and soil stability. Other factors are the age of the home and type of construction. (Frame homes do better in earthquakes than brick ones.) Deductibles range from 2.5% to 25%, with 10% being a common deductible for homes that are of average risk.

Not All Deductibles are Alike

It can be difficult to understand how a percentage deductible applies and people can be unpleasantly surprised when they have a loss. There are several reasons for the complexity:

Deductible is Based on Coverage Limit

The earthquake deductible is based on the coverage limit, not the amount of loss. This means that a 10% deductible on a $3,000,000 home is $300,000. In the event of a partial loss of $600,000, the deductible would $300,000 and the insurer would pay the remaining $300,000.

No Standard Contract Wording

There is no standard contract wording for earthquake deductibles and variations can have a material effect on how much your total deductible may be. For example:

• Some insurers apply the deductible to each coverage. If you have damage to your home, other structure (such as a detached garage), and contents, the deductible would apply separately to each one. A 10% deductible on a $3,000,000 home that sustains damage to a detached garage and contents would be:

• Other insurers apply only one deductible (usually a percentage of the dwelling limit) even if the loss involves the residence, other structures, and contents. In the above example, the total loss of $1,200,000 would be subject to a $300,000 deductible. This is clearly the better option whenever it is available.

Inclusion of Earthquake Coverage for Contents in Homeowner Policy

Some insurers include earthquake coverage for contents—subject to the standard (flat dollar) deductible—in their homeowner policy. Earthquake coverage for the home and other structures is then endorsed onto the homeowner policy, subject to the percentage deductible. In that case, a loss involving the residence, other structures, and contents could be subject to two deductibles—a flat deductible for contents and a percentage deductible for the home and other structures. The good news is that many insurers waive the contents deductible in this instance.

How to Determine Your Earthquake Deductible

Given the complexity, it can be a challenge to determine how your deductible will apply. It’s important to read your policy because claims adjusters will use it to determine if a claim is covered and, if so, how the deductible will be applied.

• First, read the earthquake exclusion on your homeowner policy. You may have coverage for your contents already. If so, the exclusion will state that the residence (Coverage A) and other structures (Coverage B) are excluded. If contents (Coverage C) are not excluded, then you have earthquake coverage on your contents.
• Next, read the earthquake coverage form, either attached to your homeowner policy as an endorsement or as a separate earthquake policy. Pay particular attention to the deductible clause, which will state how the deductible will be applied. The deductible percentage will be stated on the earthquake coverage form or on the policy declarations.
• Finally, consult with your broker, who can answer questions and clarify policy wording. Since we are located in earthquake territory, our Account Advisors work with earthquake coverage on a daily basis and are well versed in each of our insurer’s forms. We can assist with specific questions and provide illustrations of how earthquake claims may be adjusted by your specific carrier.

Earthquake is an important coverage for those who live in Western states and Alaska, even with the substantial deductibles. We want to be sure that you have the facts that you need to make an informed decision about all of your insurance coverages, including earthquake.

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