Deciding Between Retrofitting and Purchasing California Earthquake Insurance


Many property owners question whether they should buy earthquake insurance or retrofit their property.  In an area as seismically active as California, all property owners should examine the pros and cons of investing in earthquake insurance and/or retrofitting a building.  Although a homeowner can have his/her house retrofitted and then purchase earthquake insurance, because of the substantial investment, many people analyze the options and either purchase insurance or retrofit their homes.  The options are:

 1. Do Nothing and Hope that the “Big One” doesn’t happen

2.    Purchase Earthquake Insurance and Do Not Invest in a Seismic Retrofit

3.    Invest in a Seismic Retrofit and Do Not Purchase Earthquake Insurance

4. Retrofit the House and then Purchase Earthquake Insurance

Purchasing earthquake insurance coverage protects against damage caused by an earthquake.  The insurance protection helps after damage occurs.  Premiums for earthquake insurance are based upon the replacement cost of the building.  Premiums for this type of insurance are typically very high – running into the 10’s of thousands of dollars per year.  Additionally, earthquake insurance policies generally carry very high deductibles.  A typical earthquake policy’s deductible is 15% of the buildings value.  Therefore, for a $600,000 policy, the deductible would be $90,000.00.

 Because of the high cost of the insurance and responsibility for a large deductible, many homeowners find that earthquake retrofitting makes more sense than purchasing limited protection against a future disaster.  In a devastating earthquake, an earthquake retrofit can make the difference between having a building that is habitable after an earthquake and a building that has been destroyed.

 The benefits of an earthquake retrofit cannot be overstated.  Retrofitting  strengthens the structure against damage and/or collapse and protects the people in the house.  A story from the 1989 Loma Prieta Earthquake provides a dramatic illustration of the benefits of an earthquake retrofit:  There were  2 Victorians built 100 years ago by the same builder on the corner of Center and Elm streets in Santa Cruz, California. The houses were identical in design, materials and construction methods.  Before the earthquake, both homes were purchased by a local architect.  The new owner was able to complete a retrofit of one of the houses before the earthquake.  The mudsill had been bolted to the foundation and plywood shear panels had been installed.  Unfortunately, the 2nd, identical house had not been retrofitted before the earthquake struck.

 The results were dramatic – the house that had been retrofitted suffered only minimal damage.  The entire cost to repair it after the earthquake was $5,000.00. On the other hand, the house that had not been retrofitted suffered major damage and became uninhabitable.  It had to be jacked up while an entire new foundation was installed.  The cost of repairing the house that had not been retrofitted was $260,000.00.  (For more information on this Santa Cruz example see “Earthquake Safeguards, Homeowner’s Gulde, APA – The Engineered Wood Association”).

Ultimately, the decision whether to purchase earthquake insurance is an individual decision that must be made on a case by case basis.  There is no right or wrong answer – the analysis is different for every person.  However, all of the experts agree that a home retrofitted to basic seismic safety standards will substantially reduce the risk of severe earthquake damage.  As to earthquake insurance, United Policyholders advises as follows:

If you live in EQ country, have equity in your home and couldn’t afford to rebuild it on your own, buying earthquake insurance makes financial sense.  It really is that simple.  And whether you buy it or not… make sure to mitigate/retrofit.