Oklahoma has been hit by several earthquakes over the past several years. These earthquakes continually get larger and larger. Questions regarding earthquake coverage has paralleled the earthquake activities. There has been a drastic increase in earthquake insurance sales, and in earthquake insurance claims.
However not all the earthquake claims are being approved, most are being denied, and that is raising even more questions. Specifically, “Is earthquake insurance worth buying?” One claim out of 10 is approved in Oklahoma. This leads consumers to feel like they are being scammed.
We will attempt to help answer some of the questions consumers have about earthquake insurance by addressing a few topics in this article. We will talk about two ways of obtaining earthquake insurance, what to look for in an earthquake policy, deductible options, and why claims are being denied.
Two ways to purchase earthquake insurance
You can buy earthquake insurance through an endorsement or a standalone policy. Adding earthquake coverage to an already existing policy is the most inexpensive and simplistic way to purchase coverage. When a policy is amended to add coverage, or remove coverage, the amendment is called an “endorsement.” Some companies, like Safeco, will offer earthquake insurance as an endorsement to your homeowner’s policy. The coverage is usually inexpensive (mine ranges about $50/year), but it also tends to have limitations. It may not offer the right deductible, or may not cover certain items that you need to be covered.
Standalone policies are the second way to purchase earthquake insurance. Companies are out there that are willing write earthquake insurance without having a homeowner’s policy attached.These companies usually offer much better deductibles and do not have the same exclusions that endorsements have. They are, however, much more expensive. Although you get what you pay for, you may not ever use the coverage, so it is a trade-off. Do you pay more now thinking there is going to be a claim, or do you save up and pay much more when the claim happens?
Two Factors to make sure are included in your policy
There are two coverages that you want to make sure are included in your policy. Brick Veneer coverage is vital if you live in a home that has brick, stone, or rock on it. Many endorsements based policies exclude this feature. This means that there is no coverage for damage done to the brick, stone, or rock on your house!
Every person living in Oklahoma needs to make sure your policy includes “man-made” earthquakes! You are wasting your money if it does not. Insurance companies are denying claims using the argument that the earthquake is a result of fracking and thus "man-made." Human-made earthquakes are excluded from many insurance policies. Regardless of your opinion on the cause of the earthquakes, the insurance companies are successfully arguing this and getting out of claims. If you find a policy that covers human-made earthquakes, you will not have this problem when a claim arises.
Earthquake insurance comes with all sorts of deductible choices.You can get a deductible as low at 2% or as high as 25%.You don’t necessarily need a 2% deductible. Earthquake insurance is designed to be catastrophic coverage only! It is not intended to pay for the small damage. But remember, this deductible is based on the value of the home, not the amount of damage.
Let’s look at an example.If you have a home valued at $200,000 and there is earthquake damage, here is what you will be paying:
2% deductible - $4,000
5% deductible - $10,000
10% deductible - $20,000
15% deductible - $30,000
Although $20,000 sounds like a lot of money to pay out of pocket, it is nothing compared to the $200,000 you would lose if you did not carry the right coverage.
Why are so many claims being denied?
I have been told by many people that they are not interested in the earthquake because it is a “scam!” “The insurance companies are denying everyone’s claims saying it is ‘earth movement’” one prospect told me. Well, that is true, but it does not mean you should not get coverage.It means that as consumers, it is important for us to have a better understanding of our policy.
As I mentioned in the deductible section, earthquake insurance is catastrophic coverage. The policy is not designed to fix drywall or repair a small crack in the bricks outside the home. It is intended to repair a retaining wall that collapses or a roof that falls in as a direct result of an earthquake.The policies are written to cover damage from a single, sudden, and direct event. Many times, cracks in walls and brick are caused from time and settling. It is very hard to determine if a small crack was directly related to a single, sudden, and direct event or prolonged settling. Many claims are denied as a result. However, when a retaining wall has fallen, or a roof has caved in immediately after an earthquake, a claim becomes much more justifiable.
Is it worth buying?
Earthquake Insurance is worth having if the earthquakes in Oklahoma continue. This is assuming you have purchased it correctly. I don’t necessarily believe that you should go out and purchase the lowest deductible with all the bells and whistles, but you should look at this coverage the same way you look at your home insurance. If you were to be without a home suddenly and you were in the most desperate means, how much would you want your insurance company to pay you?
Maybe you just bought a home and would owe 98% of the home to the bank. Then you would want a 2% deductible.But if your home is almost paid off and you have $30,000 in assets that can go to an emergency, you may be ok with a 25% deductible.Everyone’s situation is different, but I do believe you should have something in place to protect your most expensive and valuable asset.
I hope this article helped answer some of your questions on earthquakes in Oklahoma. I would be happy to speak with you if you have additional questions. Our office does offer homeowners policies with earthquake endorsements as well as standalone policies. Please feel free to contact me if you would like to discuss this topic in more detail or if you would like pricing information on your particular home. Our office number is (405) 708-6645. Thank you for reading!