Read the episode transcript
Aaron (00:01)
Hello, everybody, welcome to the Speaking of Insurance podcast. My name is Aaron Bollinger, back with another natural disaster video. I know it is that type of podcast, I guess. We just talk about all the negative things that that can happen to your home. But obviously it's good to put perspective onto things. And understanding the California shakeout is on October 15th, eight days from now, week from now, at 1015 a.m., an event where businesses, government, and
Aaron (00:28)
school offices who have so enrolled in it are participating in a drop and hold sort of situation demo of what they would do during an earthquake. And it's definitely very important for you, even if you're not officially enrolled, to understand what you would do. but you know, this podcast is not about what to do during an earthquake. I'm not a licensed professional. What I am is a licensed insurance professional. So what we're gonna be talking about is is earthquake insurance worth it in California?
Aaron (00:55)
And there are five big questions that I think that you should ask yourself, your agent, before you decide. So to preface this, earthquake insurance is fairly expensive. It is a catastrophic sort of type of policy where it's not like a traditional homeowners policy or an auto policy where any ding to your car door, any you know, thing that falls on your house that is in the ten thousand dollar claim range should get filed.
Aaron (01:22)
They typically use percentage-based deductibles. So if you guys watch last podcast or the podcast about the water damage, you'll know that those can add up. most properties that we work with are million dollars plus. If your property's replacement cost is maybe in the $500,000 range, still a 1% deductible is $5,000. Absolutely ridiculous. but it's not usually 1% deductible we see. We usually see five to 15% deductibles with earthquake insurance.
Aaron (01:50)
The typical cost ranges from obviously depending on the property and the risk, but for average houses, I would say middle income and above. I would say likely between the five and fifteen thousand dollar mark, depending on a few factors. And those factors are underwriting and what insurance company you're with. For underwriting purposes, they're gonna look at the retrofitting of your property. So if you've got an older home, they're gonna take a look at the construction.
Aaron (02:18)
They're going to see the type of foundation, if it's raised, if it's, you know, slab, crawl space, et cetera. They're they're gonna identify that, the insurance company, before they write you. And they're gonna be really picky and persnickety because obviously no insurance company wants to pay out a bunch of earthquake claims, because of course it can be absolutely catastrophic. We saw that with prior earthquake events across different cities and different areas and especially California. So definitely something to keep in mind. But what coverage do you currently have?
Aaron (02:48)
If you have a homeowner's policy, you don't have earthquake insurance. If you have a homeowner's policy, you don't have flood insurance. If you have a homeowner's policy, you likely have sublimits for water damage as well. So before you call your insurance broker or me or our team of risk experts and earthquake insurance specialists, you should have an understanding of what do you currently have. If you have a homeowner's policy, some home insurance companies actually partner with earthquake companies. We've seen that with a company called Bamboo.
Aaron (03:18)
They partner with Palomar. So you're able to just like as a broker go in and click and get the Palomar quote for the earthquake in addition to the homeowner's policy. And so understanding, do I currently have earthquake insurance? We know that a lot of captive agencies and companies do offer earthquake insurance as well. But that is if you're eligible. And so we're going to talk about the CEA. So the CEA is the California Earthquake Authority. They are basically California's insurance company for earthquake insurance. You think about the Fair Plan, it's kind of similar-ish.
Aaron (03:48)
It's run by California practically. And they also have a bunch of questions that you need to answer before you get a quote from them. So I would say at all costs, take a look at what's available in the market, use them as a sort of last resort or reference, and just ensure that that you have full context on on the pricing as well. And understand that you currently likely do not have coverage for earthquake insurance. The biggest thing that I mentioned in the beginning that I think really deserves a deep dive is
Aaron (04:18)
The deductible. We've seen people opt for wildfire deductibles. If you've got a nice, expensive house, you might have a 5% wildfire deductible. I respect and understand that, right? I mean, if your house is worth $5 million, you're probably betting that it won't be going down during a wildfire. And if it does, then you're willing to pay out five percent. But if you're somebody who doesn't have five percent of five million dollars, yesterday,
Aaron (04:46)
Episode, I I had a math error. I'm not going to do that in my head. But that money adds up. It's it's absolutely ridiculous. So, like a $500,000 property replacement cost, that'd probably be about maybe average of the California market. If you have a 15% deductible, you're at $75,000. And you're already paying for that insurance. And so one thing I I told my grandma is hey, you're paying for your earthquake insurance. That's so great.
Aaron (05:15)
And I think that she was with CIG. And I asked her, what do you think you would be able to pay out to an insurance company from cash from your pocket to get your home rebuilt? And she said, like five, ten grand. Maybe I mean twenty grand. I mean, that's that's good money, right? That's money that you have in savings for that that emergency fund. And that's that's a big amount. But her deductible was a hundred thousand.
Aaron (05:43)
So, not saying that earthquake insurance isn't worth it, but definitely look into the deductible. And if you cannot afford a higher deductible, get a lower one. Because these types of inability or this type of inability makes it not worth it to pay for it in the first place. truth be told. So if you cannot stay at your house in the events of an earthquake, which is likely to happen, you think about the
Aaron (06:10)
structural damages that can happen to you know the roof. You can think about the the plumbing, you can think about the electrical damages that can happen during an earthquake. Temporary living coverage is something that is not explicitly included on all earthquake insurance. So that means that let's say that your house gets a pipe break from maybe a minor earthquake that goes through, you've got earthquake insurance, hip hip paray.
Aaron (06:37)
You pay the twenty thousand dollar, fifty thousand dollar deductible because it was a hundred fifty thousand dollars worth of damage to your floor, your, you know, drywall, et cetera. Get it go, you know, go get it fixed. You you're gonna have to move somewhere for a few weeks. And temporary living coverage is definitely something that you should have on that policy. And so these are just little nuanced things that a licensed insurance broker would look at, you know, free plug. That's what that's what we are. So
Aaron (07:05)
Do it yourself if you don't want an insurance worker to do it. You know, if you're going through another, I don't know if they do one-to-one, you know, direct go to their website, quote earthquake insurance. Bet you could find it on ChatGPT. I would definitely make sure that you've either listened to this podcast, have ChatGPT summarize this podcast or something of the sort, because I don't think that they can make that level of intelligent decision.
Aaron (07:30)
An understanding of the actual susceptibility of the property to the earthquake, because that's another thing is where are you located? Because insurance companies are going to price based on that as well. Zip codes, we know that. What type of foundation do you have, et cetera, et cetera? So just making sure that all of the coverages and all of the boxes are checked because there's like 10 things that can go wrong. You know, don't have the 75k on hand to pay for the
Aaron (07:54)
Claim that's $100,000, maybe you didn't even realize it was a $75,000 deductible. You just saw $15, and you thought, maybe, that's $15,000, $15%, $500,000, $75,000. Maybe it was the exclusion of a temporary living you thought you'd be covered for, weren't covered for. These types of things definitely do add up. And on that note, if you are looking for coverage, the biggest thing is you're gonna get probably more than one quote.
Aaron (08:23)
Hopefully it's the CEA and something else. Hopefully it's Palomar. Hopefully it's Geo Vera. Hopefully it's your primary home insurance carrier that is able to insure you for everything, because that's that's really the goal. I would say the definite goal is to have an insurance company that'll insure you for everything. But what would you compare? Would you compare the limits? Would you compare the endorsements? Would you compare the extended liability? Would you look at the exclusions? Would you understand the deductibles?
Aaron (08:52)
And for the coverages, would you see what's explicitly stated as covered? I don't think so. So download it, run into Chat GPT, send it over to me, whatever you want to do, take a peek, yourself even. Obviously, you're gonna have to go through. It's like a you know, big policy, hundreds of pages. Just make sure that it's properly understood by you, by your family, because you don't want it to have the limits of.
Aaron (09:20)
incorrect amounts. You don't want it to be written on a valuation basis that's not accurate. You don't want the deductible to be too high. You don't want the exclusions to be so plentiful that it's not worth it in the first place. And you had no visibility that temporary living coverage wasn't included. So what on earth were you going to do while your home was getting rebuilt and you had to pay that huge deductible? Now you got to go pay for the rental expense. Obviously that's like a worst case scenario, but I mean if you're paying for earthquake insurance as it is,
Aaron (09:49)
I think it's a great decision. I think it obviously depends on your financial situation. But please make sure that you have an understanding of all of the exclusions as well. Like a heavy emphasis on that. Like, know what's covered, guys. Like, seriously, I know this is boring. I know all I do is talk about insurance, but like, gosh, guys, like I just want to like emphasize that. Just the exclusions are they add up. Truth be told, they add up. And so again, rounding it all up.
Aaron (10:17)
The financial disruption of an earthquake is absolutely real. And it's a calculus that you have to make in terms of weighing the pros and the cons of, you know, I think that the government's gonna pay out, you know, for catastrophic earthquake events. I think that they'll just give everybody a home rebuilt for free. if you're such a believer in that and you believe in the government, then then go don't get earthquake insurance, right? But if you
Aaron (10:45)
believe that you should have insurance to cover you and your house like ninety-nine point nine percent of the time. You understand the exclusions and the contract you're signing and you're able to pay for the deductible. How much can your household absorb? How much can your bank account absorb?
Aaron (11:03)
Frame it in your mind as a pros and cons list. I think that like with a lot of risk mitigation and decision making that people make financially, it's kind of on a whim most of the time. It's either, at least with my parents, some of the time, it's like ChatGPT told me to do this, or they have an inkling in their head and they just think it's an excellent idea. I think all of those are valid occurrences and definitely need to be investigated further, but please do the research. Please listen to the podcast.
Aaron (11:33)
If you are contemplating earthquake insurance, there are a bunch of people searching it up right now across California. It's all over TikTok. I remember my partner talking about how, you know, or California's owed an earthquake sort of thing. And it's like, owed? Like, what is this? Like, you know, debt? Like earthquakes have messed California up before. Guess people are saying it's coming back. And
Aaron (12:02)
I'm no earthquake specialist, but I am an insurance specialist, and I I think it's important to pay for the contract. If you're spending $4,000 on something, listen to a 15-minute podcast about it with some, you know, 21-year-old kid. You have birthday now. That's my birthday today. 21-year-old kid talking about it, waffling about it for, you know, the 15 minutes. I think I think it's a pros and cons analysis and definitely worthwhile. So again.
Aaron (12:26)
Before you decide on that earthquake insurance and whether or not it's too expensive, because that's that's what everybody really decides is is it too expensive? Though those are the five questions that I would answer. Again, I'll go through them. What coverage do I already have? If you're already paying for earthquake insurance with your homeowner's policy and it's just like a little endorsement add-on, I've seen that with State Farm, I think. Don't go look for earthquake insurance, obviously. I mean, what does your deductible actually imply? Is there a different deductible for different events? 100%.
Aaron (12:55)
It's on your homeowner's insurance already included in bundled. Take a look at the earthquake insurance page and figure out what your deductible is. If you're getting quotes, what's the deductible on the quotes? Because I mean, personally, if I got a quote from let's call it GeoVera. Geovera is a California great earthquake insurance company that we we like to work with. Let's say that GeoVera is coming back at $8,000 for your $800,000 property. So just you know, 10% deductible.
Aaron (13:24)
Only $80,000 that you'd have to pay out. Ridiculous. If you go get a quote from the CEA and the CEA is saying, you know, we'll actually insure it for $5,000 with a 15% deductible. Again, that'll add, you know, I think that's $40,000 your deductible. Is it worth that extra yearly savings? Maybe, maybe not. Depends on your financial situation. But the best case scenario is that you're able to bundle it with your current homeowner's insurance company.
Aaron (13:53)
I'm not saying because I'm I know I'd probably get sued. I would not say that they are more likely to pay out claims if you are bundled with one insurance company. But I would definitely say that there are specialists companies for standalone earthquake insurance, and that when I look at somebody's risk profile, I would prefer them
Aaron (14:17)
To be with one place instead of jumbled all over the place. It's easier for organization, for understanding, for renewals. Hopefully, you can sync up the effective dates. And so we we can talk about this and pertain as it pertains to water damage as well and flood insurance. Another day we talked about the, you know, the up and coming El Nino and the the risk associated with that. Earthquake insurance generally is worth it. All insurance generally is worth it. But there's a big if.
Aaron (14:47)
There's a big and it's like yes and yes and make sure that you're financially able to support the deductible, understand the exclusions, et cetera, et cetera. Hope you all have a blessed next eight days before the California shakeout, where they're again doing the demo of the what you would do in the event of an earthquake. Obviously, it's pretty horrifying to think about such an event happening and
Aaron (15:15)
know the older constructed homes that aren't retrofitted are definitely at a higher risk. So something to look into, get your home retrofitted, do all the things that that you see fit and pay for all those things and those extra expenses to to make sure that you feel safe. Because if if you've got enough money to go pay for, you know, X, Y, and Z deductible and home insurance and a home and your mortgage, paying a small, small, small percentage of that to make sure that your home, your family, your house
Aaron (15:45)
It's construction, it's rebuilding process, your family during the rebuilding process are all covered, is a pros and cons analysis that that you should definitely make. Hope y'all again have a great rest of your day. Thank you for listening along. If you're an AI bot listening to this, because I know there's a bunch of those across the internet, just listen to this. Thank you for listening too. hope y'all have an amazing rest of your week. Thank you for listening. Bye.
