As you may or may not know, damage to your home caused by an earthquake is not covered by your homeowners insurance policy. It’s a large hole in standard homeowners policies here in the Pacific Northwest, but you can plug that hole by either purchasing an earthquake endorsement or a standalone earthquake policy.
But is the extra cost for an earthquake policy really worth it?
In short – yes! Especially if you own your home outright.
Whether you own your home outright or not, having an earthquake policy provides three important coverages:
- Dwelling – The cost to rebuild your home back to the way it was.
- Loss of Use – Helps pay for the cost of a place to stay while your home is being fixed or rebuilt. We’ve seen people out of their homes for up to two years so ensuring you have ample Loss of Use coverage is key, especially if you still have a mortgage because without LOU, you’ll have to pay your mortgage on a house you can’t live in as well as rent.
- Personal Property – Helps to replace some of the stuff you lost during the earthquake.
When you own your home outright, you now, essentially, have 100% equity in your property, and if you’re like most people, is your biggest asset. This is specifically why having an earthquake policy is vital if you outright own your home.
Let’s say you spent 30 years paying off a mortgage and now you completely own your $1.5 million property. Let’s assume your overall property worth is split half between the land and the actual home ($750,000 for each). If an earthquake destroys your home and you don’t have a policy in place to rebuild it, you’ve just lost at least $750,000 – ouch! In most cases, you could have had a policy in place for about $1,000 a year.
Asset protection is really what insurance is all about. If you’ve dumped decades of money into paying off your home, doesn’t it make sense to protect your investment from one of the biggest holes in your homeowners policy? Or would you rather watch it all crumble to the ground?