Earthquake Insurance in Bay Area

12 Replies

Hi All,

Are you taking out earthquake insurance on your investments in the Bay Area whether for SFH or Multi? I know a lot of folks who see this as a waste of money or a unlikely event, but give the huge financial investment required to own property in this area how do you think about your downside protection for an event that could set you back years? Is it better to invest in new properties that have a better chance of withstanding a quake?

Thanks. 

Either way it’s gonna set you back as deductibles are 10-15% of the insured value.

One decision process you might use is to look at what the impact of a "significant loss event" with  extended period (say, 12 months or more) of uninhabitability would do to your personal and/or business finances.  Would you be facing financial ruin, or just a period of hardship that you could make it through?   If you are facing financial ruin, the coverage may be worth it.  

Take what I say next with a grain of salt because the past is certainly no guarantee of future results, but after the Northridge quake in '94 in So Cal, FEMA (with the help of the SBA, I believe) offered low interest rate loans to property owners who had no earthquake insurance (almost nobody had EQ insurance then) to make required repairs.

No one should expect a government bailout, but something like this may happen again the event of a large temblor that does widespread damage.   If you don't have a significant equity position in an investment property or don't face complete financial ruin with an extended vacancy, this could be a fallback position.

@Ratesh D.

This is a great question, one that I have asked myself many times. 10-15% as a deductible of the insured amount is a large chunk of change to lose and for most places in the Bay Area a complete deal killer. Being a buy and hold investor this makes me a little nervous as I am sure to experience some sort of quake over the life of my investments. 

One way to help hedge your bets is to acquire deals built before 1989 - aka the last big quake- and hope the fact that they are still standing is proof they are "earthquake proof." Not a great strategy but better than nothing. 

@Ratesh D. We just grappled with this after going through the 2013 Napa earthquake, the recent Santa Rosa fires (came within 2 blocks of our rental) and my inlaws being affected by the Houston floods and decided to go ahead with earthquake insurance. We added $25k of lost rent coverage that kicks in regardless of hitting the deductible, this seemed worthwhile in case of a situation where our tenants couldn't live in the home, but we didn't hit the deductible for the damage. Our annual premium is $651 with a 15% deductible. I think it comes down to risk tolerance, we've had the property for 10 years without it, but have been rattled by recent events!!

I think this post started with earthquake insurance. Then people mixed up with all kind of insurance, such as fire, flood, etc. For rental properties, I always choose more comprehensive insurance policy and put an umbrella on top of it. Earthquake insurance, however, is an exception. reasons: 1. There don't have many insurers (as my understand, they all run by government). 2. deduction is big when it claims. Given these reasons I chose not to buy earthquake insurance for all my SFH properties in bay area I knew, this will have some risk. But I am willing to take it. The reasons I am taking the risk. 1. earthquake usually won't destroy a house completely. Usually it would create a crack, etc. 2. to hedge the risk, I purchase my SFHs in different area, not concentrate in one zip code (or even one city). Since I bought all my properties in 2009-2013 time frame when I had choice. Nowadays, I don't think I can do this anymore. So I stop buying:)

@Ratesh D. , interesting timing, I just had this conversation with a few local BP investors on Saturday.  In my particular case, the deductible is still to high.  At a 10% to 15% deductible, my buildings would have to sustain substantial damage or completely collapse before I saw anything from the insurance company.  My buildings are all over 50 years old and they have not had any damage yet, so I am not getting earthquake insurance.  The one thing that I do make sure is that they are bolted to the foundations. @Amit M. did you come to any decision yet?

Appreciate the replies. Even with a 10-15% deductible, why is that not worth it for the high priced bay area homes? Assuming the building value (not including land) of at least 500K, I would think the damage from a major quake would far exceed 50-75K (thinking about what a 2.5 bath and kitchen remodel costs)

@Jonathan Pflueger Pre 1989 is most of the valley and most homes built since then have improved structures designed to flex so I would imagine those are safer bets. 

@Rachel Bier Wow you've seen some action and glad the fires didn't get to your rental. Double checking  your annual earthquake insurance is $651/year? Sounds very cheap. Could you share who it is with?

@Jim Gouston If I understand correctly, umbrella doesn't cover earthquake damage, correct? I like the multi zip code idea. How far apart are you spread? Top marks for buying when you did :)

@Arlen Chou Did you do the bolting after purchase? If so what kind of cost does this entail?

Hello Ratesh, I look for bolted foundations at the time of purchase so I have no knowledge as to the actual cost.  

Good luck to you!

Arlen

@Ratesh D. We got it through the California Earthquake Authority via our insurer USAA. The CEA website has a premium calculator where you can adjust the different aspects of coverage.

https://www.earthquakeauthority.com/california-earthquake-insurance-policies/earthquake-insurance-premium-calculator

@Ratesh D. You are correct.  Umbrella doesn't cover earthquake.  I separated locations of my SFHs in 20-30 min driving distance.

Ratesh bolting after the fact, that is after a home is built, will cost about $250 per bolt, which is technically not a bolt, but a Simpson tie down. They are supposed to be no more than 6 feet apart along the perimeter foundation. You can add extra tie downs to homes that were built before the code said every 6 feet to make them more sturdy. Also, my engineer tells me that linear cracks along a concrete foundation should b repaired and that cost is about $1000 a linear foot. Finally older homes as well as hillside homes should have cripple walls braced. My feeling is that we know there will be an earthquake, possibly in our lifetimes and possibly in our neighborhood. My feeling is that I want my investments to be over protected against quakes so that they have the best chance to be standing after a large quake. That will make them more valuable than the homes that are damaged and potentially left vacant after a quake. 

$250 per Simpson tie down? And $1000 per linear foot to repair a foundation!?!  you’re getting screwed big time. I’d get some other bids and basically tell that contractor to F-off!

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