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Do you need earthquake insurance?

Millions of Americans live in a region where the ground can begin to shake at any moment.

The top 10 states for earthquakes are:earthquake insurance

1. Alaska

2. California

3. Hawaii

4. Nevada

5. Washington

6. Idaho

7. Wyoming

8. Montana

9. Utah

10. Oregon

However, homeowners often are surprised to learn that a standard home insurance policy does not cover earthquakes, says Pete Moraga, a spokesman for the Insurance Information Network of California (IINC).

A 2008 IINC poll of California residents highlights the problem.

"We found that 31 percent of homeowners said they have earthquake coverage," he says.

In fact, IINC statistics showed that at that time, just 13 percent of California homeowners actually had this coverage.

"Clearly, some homeowners thought they had the coverage when they didn't," Moraga says.

Do you need coverage?

Several factors impact your risk of damage from an earthquake. According to the California Earthquake Authority (CEA), they include:

1. Where you live in relation to earthquake faults.

2. The age and type of dwelling you live in.

3. The soil type where you live.

Everyone knows the risk in California, but Alaskans face even greater odds of being shaken by an earthquake, according to the U.S. Department of the Interior.

In fact, the state known as "The Last Frontier" accounts for more than 50 percent of all quakes in the United States, and the number is likely underreported, according to the Interior Department.

And as the East Coast found out in a 2011 earthquake centered in Virginia, few regions are immune. In fact, earthquakes have occurred in 39 states, and damages associated with earthquakes have affected all 50 states, according to the III.

"The most severe earthquake in U.S. history occurred in 1811 in Missouri," Barry says, referring to the famed series of New Madrid earthquakes that struck the Midwest.

As a result, Missouri residents must purchase earthquake coverage "at rates higher than almost any other state," Barry says.

Despite the risk in California, only 11.3 percent of Golden State residents purchase earthquake coverage, according to the state's Department of Insurance.

Pomeroy believes there are many reasons that Californians do not buy earthquake insurance despite the risks.

"It can cost more than the underlying homeowner’s coverage, and that's for an event that's very infrequent," he says.

How much does earthquake insurance cost?

An earthquake can significantly damage or even level your home. It also can toss around and destroy personal possessions.

Earthquake coverage reimburses any such losses caused by "earth movement," says Michael Barry, spokesman at the nonprofit Insurance Information Institute (III).

Losses that result from certain secondary events triggered by a quake – such as a fire ignited by a burst gas pipe, or flooding resulting from broken water pipes – are covered by home insurance policies in most states, he says.

Earthquake insurance is available as a separate standalone policy, or as an endorsement to your homeowner’s insurance policy. Typically, an endorsement will provide an amount of coverage equivalent to that of the rest of your home insurance policy.

The premium you pay for earthquake coverage depends on several factors. You will pay a lot more in parts of the country with a high risk for earthquakes.

The age of a home also impacts costs. Wood frame structures generally cost less to insure than brick buildings because the former have more flexibility and hold up better in earthquakes.

Premium costs are calculated on a "per $1,000 basis," according to the III. A frame house in the Pacific Northwest might cost $1 to $3 per $1,000 of coverage, while the same house on the East Coast might cost less than 50 cents per $1,000 to insure, the III says.

Meanwhile, a brick house in the Pacific Northwest would cost between $3 to $15 per $1,000, while the East Coast version could be insured for between 60 cents and 90 cents.

Earthquake insurance in California

If you live in California, you can get earthquake coverage through the California Earthquake Authority (CEA).

The CEA was created in 1996 in the wake of the 1994 Northridge earthquake centered near Los Angeles that damaged many residential areas and triggered many home insurance claims.

"Insurers got their clocks cleaned," says Glenn Pomeroy, CEO of the CEA. "Something like $14 billion was paid out."

For decades, California law has required all homeowner’s insurance companies to offer earthquake insurance to policyholders. Rather than face the prospect of more losses after Northridge, insurers began pulling out of the state market altogether.

The CEA was created as a publicly managed, mostly privately funded way for homeowners to protect their properties. Home insurance companies that participate in the CEA offer earthquake coverage, and the CEA bears the risk.

The CEA says it is the only entity of its kind in the country that provides earthquake insurance in this manner.

Currently, the CEA has more than 800,000 policies in force, which represents about 70 percent of the state's residential earthquake policies. The remainder of earthquake insurance policies in California is sold directly by insurers.

In 2011, the average annual CEA earthquake premium was $744.57, according to the California Department of Insurance.

Percentage deductibles

Earthquake coverage often comes with a "percentage deductible." That means instead of paying a standard deductible of $500 or $1,000, you pay a percentage of your home's insured value.

Percentage deductibles for earthquake coverage range between 2 percent and 20 percent of a home's replacement value, according to III. Some states with higher risks of earthquakes – including Nevada, Utah and Washington – set minimum deductibles of about 10 percent, III says.

The standard percentage deductible for a CEA policy in California is 15 percent, although homeowners willing to pay higher premiums can get a 10 percent deductible.

Moraga has words of wisdom for people who balk at buying earthquake coverage because they feel the deductible is too high:

"Without an earthquake policy, the deductible is 100 percent," Moraga says.

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