Rental Property Investor · Los Angeles · Member since 2019 · 284 posts · 184 votes
Those of you who invest in California or Pacific Coast that own property, what are your thoughts on Earthquake insurance? Do you have them for your properties? Is it worth it? If not, what will you do in an event of a major earthquake??
Rental Property Investor · Everett, WA · Member since 2015 · 457 posts · 386 votes
7y
@Alvin Uy I think about the cost of the insurance in comparison to how much equity you have in your properties. We have seen large growth in the value of our portfolio so protecting that value with insurance makes sense. As such, we carry earth quake insurance on all our rentals along with loss of rent provisions. We went through a broker and the rates were expensive but not terrible. There are a lot of different major companies selling insurance policies. If you are concerned about any specific one, you could always move your coverage to a different company.
Insurance is simply a means of transferring risk that people do not want to accept. There is no universal right answer, just like investing, everyone's level of risk tolerance will be different. All you need to do is determine your level of comfort with taking on the risk of loss from an earth quake.
Kailua-Kona, HI · Member since 2018 · 45 posts · 9 votes
7y
In my opinion, since my monthly is so low (just under $30 per month), I think is worth having it. As I recall during this process of learning, one of the biggest issues is being under insured. You never know when things will happen. And insurance (repeating what others have said, which I agree with) should be the first line of protection. This is my personal opinion.
Investor · Coeur d Alene, ID · Member since 2013 · 109 posts · 29 votes
7y
I agree with @Diana Villalon on this issue. In California it may happen in our lifetime that you will need this type of insurance. It is relatively cheap and is entirely up to you.
Rental Property Investor · Los Angeles · Member since 2019 · 284 posts · 184 votes
7y
@Diana Villalon@Ronnie S. Yes, I currently have it on all my properties now.... but I wouldn't say they are that cheap compared to most Home Owners Ins. Reason I ask is after speaking to a wholesale insurance broker ( a close personal friend of mine), he personally think its not worth it.... and he is a high risk insurance guy!! When I asked him why, he says that Earthquake insurance policies are all by CEA (California Earthquake Authority) which is privately held. He thinks if the big one were to hit, this company will more than likely go bankrupt and will never payout the claims. Needless to say, this is very concerning and got me thinking.
Maybe I should've mentioned this on my original post. I'll update it now...
I agree with @Diana Villalon on this issue. In California it may happen in our lifetime that you will need this type of insurance. It is relatively cheap and is entirely up to you.
I forgot to ask you if you have them for your properties.
I agree with @Diana Villalon on this issue. In California it may happen in our lifetime that you will need this type of insurance. It is relatively cheap and is entirely up to you.
I forgot to ask you if you have them for your properties.
When I had expensive properties in Seattle I never had earthquake insurance although earthquakes do hit once in a while. Cost far exceeded value. Besides, if you tie your house to the foundation you are unlikely to need insurance anyway unless the "big one" hits and by then, the concern will be physical survival (water, food, heat, AC) and fending off the hoards of people who didn't have insurance that want what you have. As of the 2010 United States Census, southern California has a population of 22,680,010
Do you think earthquake insurance is even going to be meaningful in CA if the "big one" hits? We chose to live in Arizona so we could be in Texas by the time the hoards from California make their way to Phoenix after a huge 'quake. You have to understand demographics. ;-) And the interstate system. One "bridge out" and you can't get anywhere, not to home to your earthquake insured property or to Phoenix to find a hotel room. Too many people in front of you.
Investor · Coeur d Alene, ID · Member since 2013 · 109 posts · 29 votes
7y
@Alvin Uy I dont have it on any of my condos. Reason being...if the complex gets condemned...the insurance wont help a bit. I only have it on my primary at this time. With everything everyone has said...and it all makes sense...If there is a chance of recouping something and rebuilding my primary...I will take that chance. Everyone has their reasons to get it or not....this is mine.
Rental Property Investor · Los Angeles · Member since 2019 · 284 posts · 184 votes
7y
@Ronnie S. Thanks for your reply. Yes, I agree. And you're right about it not making any sense for your condos. In my case, I do have 5 properties including a 4 unit to insure. After all is said and done... Its not cheap insurance to carry. Im just crossing my fingers CEA insurance company doesn't go bankrupt before I get my payout in the event something major happens.
I have it, cost me $2k a year. It has a 20k deductible or something crazy. It’s probably pointless, but the temporary rental coverage would be helpful if the big one does hit and I need a place to stay while things are getting repaired
I have it, cost me $2k a year. It has a 20k deductible or something crazy. It’s probably pointless, but the temporary rental coverage would be helpful if the big one does hit and I need a place to stay while things are getting repaired
I know... the deductible alone is nuts!! I have several policies and I think the deductible on my primary is over 50k... I almost feel like what's the point of even getting this type of insurance... Im practically just giving money away.
Rental Property Investor · Everett, WA · Member since 2015 · 457 posts · 386 votes
7y
@Alvin Uy I think about the cost of the insurance in comparison to how much equity you have in your properties. We have seen large growth in the value of our portfolio so protecting that value with insurance makes sense. As such, we carry earth quake insurance on all our rentals along with loss of rent provisions. We went through a broker and the rates were expensive but not terrible. There are a lot of different major companies selling insurance policies. If you are concerned about any specific one, you could always move your coverage to a different company.
Insurance is simply a means of transferring risk that people do not want to accept. There is no universal right answer, just like investing, everyone's level of risk tolerance will be different. All you need to do is determine your level of comfort with taking on the risk of loss from an earth quake.
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
7y
Earthquake insurance for a SF Bay Area native: keep the family China at the fam fam's house, and have an "uh oh" kit ready. Done.
Loma Prieta in '89 is my earliest distinct childhood memory that I can pin to a specific date and a specific exact location for where I was at when it happened. End of the Cold War is a little fuzzy by comparison.
Rental Property Investor · Everett, WA · Member since 2015 · 457 posts · 386 votes
7y
@Alvin Uy we used to be covered by Geovera for our rentals but switched our coverage this last year due to getting better rates and terms. I don’t remember the other name that we switched to but they were the other major player. Lloyd’s of London also offered insurance but were slightly higher priced.
Our personal residence is covered by Safeco who offered best terms and pricing when bundled with our other insurance. This is always dynamic so you just want to make sure your broker is consistently (for us yearly) ensuring your policies offer the best coverage and terms for rate.
@Alvin Uy I think about the cost of the insurance in comparison to how much equity you have in your properties. We have seen large growth in the value of our portfolio so protecting that value with insurance makes sense. As such, we carry earth quake insurance on all our rentals along with loss of rent provisions. We went through a broker and the rates were expensive but not terrible. There are a lot of different major companies selling insurance policies. If you are concerned about any specific one, you could always move your coverage to a different company.
Insurance is simply a means of transferring risk that people do not want to accept. There is no universal right answer, just like investing, everyone's level of risk tolerance will be different. All you need to do is determine your level of comfort with taking on the risk of loss from an earth quake.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
1. The only coverage available in CA is by CEA. I’m almost sure of this, as no private insurance co offers it in CA, at least not for the masses or at anything remotely affordable.
2. Isn’t CEA backed by some significant reserve funds and/or state CA money? It shouldn’t fold easily.
Rental Property Investor · Los Angeles, CA · Member since 2019 · 19 posts · 3 votes
7y
Great thoughts from all of the previous posters. The CEA bankruptcy thing is an excellent point that I'm glad I know now and must research more on.
I'll throw my POV into the ring for what it's worth. I'm a small-time landlord. I have a duplex and my personal residence, both in CA, both older homes, both insured. I grew up during the Northridge quake and saw first-hand how some properties were total losses, while others were left completely unscathed. Back then, I also saw how glaringly unprepared many large institutional buildings were for such a quake, e.g., the Northridge Mall, Kaiser Permanente, even though conventional wisdom may have said they were. We don't really know how terrible the "Big One" is going to be, or when it's going to be. I guess it also isn't a total impossibility that another large quake like the Northridge one could happen again.
I have earthquake insurance because it would be a life-altering, catastrophic loss if for some reason I had complete losses or heavy damage (essentially, total losses) on both properties. Personally, that's too much of a gamble to take. I feel that it's worth it for me to pony up the premiums. That, and be able to sleep at night. At least until I'm at a point where I could walk away from properties and survive financially, or was diversified across the country. I considered part of those premiums as payment for peace of mind, and worth it.
I can see how if the mother of all quakes happens, that CEA could go bankrupt. I guess my question is, what if a large one like Northridge hits and it isn't a complete wash across the board? If I'm one of those unlucky souls with heavy losses, you better believe I'd want to know that I have coverage.
Rental Property Investor · Petaluma, CA · Member since 2018 · 203 posts · 164 votes
7y
@Alvin Uy I have quake insurance on all my EQ exposed properties. Insurance is for the worst case scenario and it’s one of those things you dread until you need it. If your property is a total loss and you have coverage then you’ll be so thankful you paid those premiums every year. If the quake never happens then you’ll be cursing the fact that you paid all that premium each year but it’s 100% deductible so it makes it slightly more tolerable. At the end of the day, you have to decide how much your willing to risk, and if I’ve put 20% into a property I want to protect my downside and insurance usually helps to do that. Also, I’m sure CEA has treaties in place with other insurance agencies that even if ‘the big one’ hits, they’ll be just fine. The federal gov regulates the industry quite hard and they don’t allow underwriting that puts the users at risk. Hope this helps! Good luck
My $2k per year earthquake insurance is keeping My house away from these two latest tumble. The day I take it off would be the day the big one hit my house
Rental Property Investor · Dana Point, CA · Member since 2016 · 36 posts · 32 votes
7y
My opinion (I'm not an insurance agent) and some information that I’ve gathered:
Insurance is useful to protect against catastrophic loss. You agree to pay a small certain fee today, in exchange for a guarantee of protection against a large but uncertain loss in the future. I agree with prior commenters – if you do not have a lot of equity than it likely does not make sense to carry a lot of insurance. My family schedules an annual review for insurance policies with our agents, and review coverage amounts to ensure they meet our current needs. If you have $1 million in assets, you should probably be sure that your policy covers at least $1 million in claims. If your insurance only covers $250,000, in my opinion you are underinsured.
As far as I understand, CEA is the only earthquake insurance provider in California. Most of the private insurers fund the CEA, sell their polies and service any claims. I believe CEA itself has <30 employees. CEA’s claim-paying capacity is established according to financially conservative actuarial standards, and I believe its established to pay for a Northridge (1994) sized quake. I think damages from Northridge were about $20 billion. CEA is not permitted to file for bankruptcy protection, and I believe if they get an excess of claims they prorate payments.
I also know that earthquake insurance prices vary widely even in Orange County and Los Angeles. My prices in Pasadena, Santa Ana, and Tustin are much higher than comparable polices in Dana Point and San Clemente. As a result, I have policies on some properties and not on others. We work with other investors and I know they also seem to be selective about where they have quake insurance - $200/year is not a big impact on cash flow, but $2000/year gives one second thoughts.
I'm in Canada. The rentals are on the BC coast and I pay less than $500 for each a year in insurance including the earth quake insurance, liability, replacement costs, etc.
Those of you who invest in California or Pacific Coast that own property, what are your thoughts on Earthquake insurance? Do you have them for your properties? Is it worth it? If not, what will you do in an event of a major earthquake??
" ...[friend] He thinks if the big one were to hit, this company will more than likely go bankrupt and will never payout the claims."
Tell your friend there's a serious flaw in his logic.
Hell, if he wants to use logic like that, why bother buying any insurance at all? Suppose the entire state of California burns down in a massive wildfire that puts the "Wooley" and "Camp" fires to shame? Suppose all the Central American gangs invade Southern California all at once and rob each and every household over the course of a couple of weeks, shooting and killing and maiming as they go?
Yah, under such circumstances, a lot of insurance companies would likely go belly-up rather than even attempt to pay out claims. So why bother having any insurance at all?
BUT -- suppose there's a disaster of a somewhat smaller magnitude? Just your property catches fire, and only in the front bedroom. Only your TV is stolen and a few pieces of jewelry. And an earthquake far smaller than "The Big One" hits, but it's big enough to cause damage? Say, chimney collapses and crushes your automobile.
You'd kinda want to have insurance under those situations, I'd expect, and their probability is much greater I think.