02 What you need to know
Why homeowners insurance doesn’t cover earthquake damage
A standard homeowners policy generally excludes damage caused by earthquake shaking. Cracked foundations, collapsed chimneys and broken walls from a quake are usually not covered unless you buy separate earthquake coverage.
Where earthquake coverage comes from
- The California Earthquake Authority (CEA). CEA provides most residential earthquake insurance in California. You can’t buy it directly from CEA; it’s sold through participating insurers, usually the same company that writes your homeowners policy.
- Private insurers. Some companies offer their own earthquake policies, sometimes with different limits and deductibles.
California law requires residential property insurers to offer earthquake coverage when they sell a homeowners policy, and if you decline, to offer it again every other year. The California Department of Insurance says the offer must be in writing and show the limits, deductible and premium.
How the coverage is structured
- Separate limits for the dwelling, personal property and loss of use (extra living costs if you can’t stay in the home).
- A percentage deductible. CEA offers dwelling deductibles of 5%, 10%, 15%, 20% or 25% of your dwelling coverage. Some homes, such as those with dwelling coverage over $1 million or certain older homes on raised foundations without a verified retrofit, are limited to 15% or higher.
- Exclusions. CEA policies don’t cover things like landscaping, pools, fences, masonry or separate buildings, and they don’t cover flood or tsunami.
Fire and flood are separate questions
According to the Department of Insurance, fire that is caused by or follows an earthquake must be covered by your homeowners policy, whether or not you have earthquake insurance. Flood is different again: neither homeowners nor earthquake policies cover it. Flood coverage comes through the National Flood Insurance Program (NFIP) or a private flood policy.
03 Real-world example
Example: what a percentage earthquake deductible costs you
Say your home has $900,000 of dwelling coverage, and you choose a 15% earthquake deductible. That deductible isn’t $1,500 or $5,000. It’s 15% of the dwelling limit.
Here’s the full range of CEA deductible choices on the same home:
| Deductible | Your share of dwelling damage before coverage pays |
|---|---|
| 5% | $45,000 |
| 10% | $90,000 |
| 15% | $135,000 |
| 20% | $180,000 |
| 25% | $225,000 |
Assumptions: illustrative $900,000 dwelling coverage limit; deductible calculated as a percentage of that limit and applied to covered dwelling damage. Eligibility for each deductible depends on the home, and premiums vary by insurer, location, construction and retrofit status.
A lower deductible usually means a higher premium. The right choice depends on how much damage you could absorb from savings, and how much equity you’re willing to risk.
04 What most people overlook
What condo owners and buyers overlook about earthquake risk
- Your lender probably won’t require it. Most lenders don’t require earthquake insurance on a typical one- to four-unit home loan. That makes it a personal risk decision, not a box someone else checks for you.
- The HOA master policy often excludes earthquake. Many condo associations don’t carry earthquake coverage, or carry it with a large deductible. You can see what the HOA has in its annual budget report and insurance summary.
- Special assessments can land on you. If an uninsured quake damages common areas, the association may assess owners to pay for repairs. CEA condo policies include coverage for your share of certain assessments tied to covered earthquake damage, up to $100,000 according to the Department of Insurance.
- Retrofits can matter. Older homes that are properly retrofitted may qualify for CEA premium discounts and lower deductible options.
The deductible is the number to focus on. Ask, “If a quake hit tomorrow, how much would I pay before the policy paid anything?”
05 How I’d approach it
How I’d factor earthquake insurance into a Los Angeles purchase
I don’t tell clients whether to buy earthquake insurance. I make sure they know what a 15% deductible actually means in dollars before they decide.
First, I ask whether you plan to buy earthquake coverage at all. If you do, I want a real quote early, because the premium belongs in your monthly budget just like property taxes and homeowners insurance.
Second, if it’s a condo, I look at the HOA’s insurance summary to see whether the master policy includes earthquake and what the deductible is. If it doesn’t, the loss assessment piece of a condo policy deserves a close look. More on HOA documents in reading a condo reserve study.
Third, I run your full payment with and without the earthquake premium in the mortgage payment calculator, so you can see the trade-off clearly. If you’re still shopping, also read why to get an insurance quote before you make an offer.