Earthquake coverage in south SF Bay Area?

Question

I've seen some nice posts and discussions on earthquake insurance but still haven't seen the answer come clear for my property.  I'm hoping for some feedback.

My property is a SFR in Gilroy, CA.  Note, this is not "on" an active fault line but not far from several VERY active seismic areas (Hollister 20 miles to southeast and Luoma Prieto near Santa Cruz roughly 40 miles to northwest).  The house is technically a "Jack and Jill" or "attached single family".  It shares one common wall with a single adjacent unit.  Separate ownership, title, everything.  No HOA, just CC&Rs for common areas.

Property is worth roughly $600k.  Structure valued at roughly $300k.  Debt is roughly $390k.  Rent income is currently $3k monthly.  (I know, not a big cash flow property).

So my insurance agent has quoted $450 annual for earthquake insurance.

Given this, does earthquake insurance make sense?  Are there things I should research regarding fault zones?  Obviously it's somewhat subjective based on my risk tolerance but there must be some logic to this that is objective.

Chris Mason · Answer

You posted this from San Jose about 12 hours before an earthquake hit... San Jose.

How much do you charge for access to your crystal ball?

Chris Mason · Answer

Keeps the big ones away; I'll take a bunch of baby 4.0s any day.

Kevin D. · Answer

@Chris Mason The Great Swammy knows all!  lol  That was a nice little jolt this morning though.  We like those little, "pressure releases" here don't we?

Kevin D. · Answer

HI Marcy and by the way, nice to hear from a fellow south bay'r.  Yes, the large deductible is what has me questioning the coverage.  I failed to include in my original post but just looked it up and it's at $50k.  We at first felt that why would we not just roll the dice since it'll cost us $50k just to file the claim should a major quake occur.  However, applying a simple probability cost to it (probability x cost of event) if I use assumed probability of the event as 63% chance for major (6.7 magnitude or higher) quake in the next 30 years (http://www.earthquakesafety.com/earthquake-faults....) and the $300k replacement value and I arrive at a risk cost of $189k.  Comparing this to the minor cost of annual premium x 30 years plus the deductible it costs $63,500 to cover a $189,000 risk.  Not the greatest "pot odds" but not bad.

If anyone has another way to look at this, please share.

Marcy Moyer · Answer

Anywhere in the Bay area is subject to earthquake damage. $450 a year seems pretty cheap to avoid a rebuild that will cost more than 300K. If you had an earthquake that caused 100K worth of damage and you lost income for a year could you keep up with the mortgage payments? If not, get insurance. If so, would it be worth it to save $450 a year. Of course there will be a large deductible, but if you can not cover the deductible you can not afford to have the rental.

Earthquake coverage in south SF Bay Area?

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