earthquake insurance for the rich
Why the wealthy should consider earthquake insurance.
Why Senior Homeowners Should Consider Earthquake Insurance
Why earthquake insurance becomes more useful as you pay down your principal
Have you been faithfully paying the mortgage on your main home for the past 15 years? Are you starting to feel like you’re making progress?
Be careful, you may be in greater danger of losing the capital balance of your home that cost you so much to fight if you live in a country of earthquakes. While paying for your home is usually a good thing, there are new issues to be aware of. How is that exactly?
As you carefully pay off your home loan and become more prosperous, you slowly build up a “nest of savings” within your nest (in your home). However, many people hope to tap into that equity when they reach retirement, either by selling the house, refinancing, or possibly through a reverse mortgage.
But as you accumulate funds in your home, you need to make sure they are properly protected. Your homeowners insurance should be rock solid, with a highly rated and respected insurance company. It should be in the widest coverage form possible. Nevertheless even the broadest form of home insurance excludes two main perils. These two risks can both be covered under separate forms: flood and earthquake. Flood insurance should certainly be considered, and in high-risk flood areas, it is often required by the lender. But banks do not require earthquake insurance. Therefore, I find that it is rarely considered.
Time to consider it again:
Fifteen years ago, earthquake insurance was rarely sold and quite expensive. The time has 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 is more. These companies now openly compete for your business. The landscape is slowly changing. Higher deductibles, separate deductibles, and extended coverages for things like swimming pools have really made it more affordable and personalized.
How much is your Nest Egg worth to you?
If you’re really hoping to withdraw money from your home equity, you need to be on the defensive. The best defense for a house is good insurance. California has had many devastating earthquakes in the past and will likely have more in the future. Although houses are built according to much stricter rules and safeguards, no house, regardless of what you believe, is impervious to all earthquakes. Rebuilding your home could take years and involve costs that far exceed your wildest expectations under the concept of Demand Surge. What is increased demand? Increased demand is the primary driver of cost escalation as resources become more limited due to the size and scale of an event. Do you think it is difficult to hire a contractor now? Wait until half of the city has been destroyed by a major earthquake.
Not complete destruction:
Many people falsely believe that just because their home is not destroyed by an earthquake, everything will be fine. Unfortunately, based on past earthquake experiences, even if an earthquake doesn’t destroy your home, it can lightly hit your foundation and trigger what’s known as a red tag situation. If a local government official red-tags your home, he or she will have to repair it before you can legally reside there again. Do you and your spouse have enough money to rebuild your foundation? And live in a hotel for two years?
How to protect yourself:
Many homeowners believe that their best defense against an earthquake is to use their money to upgrade their home with the latest technology. Screw your house to the foundation, plywood and the like. Others believe that their money is better spent on earthquake insurance. However, both strategies involve doing something to protect your investment from a known calamity. Simply ignoring it will not allow the future problem to go away. A major earthquake is coming in California. Personally and professionally, I believe the best defense is to do BOTH: remodel your home to modern standards AND purchase an earthquake policy with the maximum deductible you can afford.
A little preparation on your part can potentially prevent a poverty-stricken retirement. Consider all of your options to help protect your savings.
Notes: Talk to a licensed contractor in your state when considering earthquake renovations to your home. Similarly, when considering adding, changing, or canceling any insurance policy, always speak with a licensed agent in your state or jurisdiction. Insurance coverage rules, regulations, and forms may vary from state to state.
Johnson is an independent insurance broker based in Marin County, California. It is licensed to apply for and provide insurance services only in the state of California. CA license 0H11625.