Why the wealthy should consider earthquake insurance.
Why older homeowners should consider earthquake insurance
Why Earthquake Insurance Becomes More Useful As You Pay Off Your Equity
Have you faithfully repaid the mortgage on your main home in the past 15 years? Are you just starting to feel like you’re moving forward?
Be careful, you may be at increased risk of losing your hard-won principal balance in your home if you live in an earthquake country. While paying off your home is generally a good thing, there are new things to consider. How is that exactly?
As you carefully pay off your mortgage loan and become more prosperous, you slowly accumulate a “nest egg” in your nest (in your home). However, many people expect to tap into that equity when they retire, either by selling the home, or possibly through a reverse mortgage.
But while accumulating money in your home, make sure they are properly protected. Your home insurance policy (home owners) should be solid, with a highly regarded and respected insurance company. It should be on the widest possible coverage format. However even the broadest form of home insurance excludes two major dangers. These two hazards can both be covered under separate forms: Flood and earthquake. Flood insurance should certainly be considered, and in areas with a high risk of flooding, it is often required by the lender. But earthquake insurance is not required by banks. That’s why I think it’s rarely if ever considered.
Time to think it over:
15 years ago earthquake insurance was rarely sold and quite expensive. Times have changed. Earthquake insurance for most structures can be purchased through the California Earthquake Authority (CEA) and through several independent 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 comprehensive coverages for things like swimming pools have really made it more affordable and customized.
What is your Nest Egg worth to you?
If you really expect 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 is likely to have more in the future. Although houses are built in accordance with much stricter regulations and safeguards, no house, whatever you believe, is impervious to all earthquakes. Destruction of your home can take years to rebuild and can have costs far beyond your wildest expectations based on the concept of rising demand. What is peak demand? Increases in demand are the main driver of rising costs as resources become more constrained due to the size and scale of an event. Do you think it is difficult to hire a contractor now? Wait until half the city is torn to shreds by a major earthquake.
Destruction not completed:
Many people mistakenly believe that just because your home isn’t destroyed by an earthquake, everything will be fine. Unfortunately, due to past earthquakes, even if an earthquake doesn’t destroy your house, it can knock down the foundation a bit and cause what is called a Red Tag situation. If your home has been red tagged by a local government official, your home will need to be repaired before you can legally reside there again. Do you and your partner have enough money to rebuild your foundation? AND living in a hotel for two years?
How to protect yourself:
Many homeowners believe that your best defense against an earthquake is to use your money to retrofit your home with the latest technology. Bolt your house to the foundation, plywood and the like. Others believe their money is best spent on earthquake insurance. However, both strategies require you to do something to protect your investment from a known calamity. Simply ignoring it will not make the future problem go away. There’s a big earthquake coming up in California. Personally and professionally, I believe the best defense is to do BOTH: update your home to modern standards AND buy an earthquake insurance policy with the maximum deductible you can afford.
A little preparation on your part could potentially prevent a poverty-stricken retirement. Consider all of your options to help protect your nest egg.
Notes: Talk to a licensed contractor in your state when considering earthquake renovations in your home. Similarly, when considering adding, changing or canceling an insurance policy – always speak with an authorized agent in your state or jurisdiction. Insurance rules, regulations, and coverage forms may vary from state to state.
Johnson is an independent insurance broker based in Marin County, California. He is licensed to underwrite and maintain insurance policies exclusively in the state of California. CA license 0H11625.