Earthquake insurance doesn't seem to make sense if you have a mortage

[CA4Now]

Californians on shaky ground when it comes to earthquake insurance protections:

https://www.cbsnews.com/news/califor...e-protections/

[CA4Now]

"Glenn Pomeroy, head of the California Earthquake Authority, said there are a number of variables that will affect the cost of quake coverage — is your house built on bedrock or sand, for example, one story or two?"

Earthquake insurance: Is it worth it?
https://www.latimes.com/business/laz...709-story.html

[ryanst530]

You can determine the need for earthquake insurance simply by looking at the premiums quoted for your house/area. If the premiums are high, then insurance companies believe your house and/or area are at high risk for earthquake damage. If they are low, then you most likely have nothing to worry about. I would definitely consider getting insurance if the premiums are high, as counterintuitive as that may seem.

Insurance companies are pretty good about doing their homework when it comes to risk assessment.

[NewbieHere]

I have earthquake insurance for more than 20 years.

[jk88cal]

Originally Posted by HappyinCali

So I have been researching earthquake insurance and I realized that if you have a mortage that’s under 60% of the value of the house, it is probably not worth it. If your home is totaled in the event of an earthquake, they will make the check to the mortgage company and not to you. So let’s say you have a $1 mn home with a $700k mortgage and it will cost you $400k to rebuild.

Your deductible will be $40k. The actual cost of the rebuild will probably be like double that, because presumably a lot of others will be rebuilding too, so $800k.

Since this old thread was resurrected, I will chime in on the error in original post.

The land vs house cost. If the property was worth $1M, then the house itself is likely $300-400k, and land is worth $600-700k. This ratio can change drastically depending where you are in Bay Area.

It will not cost $800k to rebuild. And if you did spent $800k to rebuild, then your property is likely worth $1.5M.

[neutrino78x]

Originally Posted by HappyinCali

So I have been researching earthquake insurance and I realized that if you have a mortage that’s under 60% of the value of the house, it is probably not worth it. If your home is totaled in the event of an earthquake, they will make the check to the mortgage company and not to you. So let’s say you have a $1 mn home with a $700k mortgage and it will cost you $400k to rebuild.

Your deductible will be $40k. The actual cost of the rebuild will probably be like double that, because presumably a lot of others will be rebuilding too, so $800k.

Wouldn't 2x more than 40k be 80k, not 800k?

Also, it doesn't really matter if your house was worth one million dollars before the earthquake...that was just what you could have potentially got if you sold it. That's why I always think people were stupid to walk out of a mortgage that was "underwater" in the early 2000s...who cares? Presumably you bought the house to have "stability", not to make a lot of money when you're 90 and have to move into an assisted living place. The main thing should be that you can continue to afford the mortgage, not the value of the mortgage compared to the value of the house.

Anyway, presumably your mortgage is going to stay at 2k per month or whatever, whether your house falls down in an earthquake or not. So the only question is, will whatever insurance plan you currently have -- whether it is called "earthquake insurance" or "homeowner insurance" -- will pay a significant percentage of the cost of repairing/rebuilding the house. If it would, then it's probably worth it.

[neutrino78x]

Originally Posted by CA4Now

"Glenn Pomeroy, head of the California Earthquake Authority, said there are a number of variables that will affect the cost of quake coverage — is your house built on bedrock or sand, for example, one story or two?"

Earthquake insurance: Is it worth it?
https://www.latimes.com/business/laz...709-story.html

Also, the linked article says that earthquake insurance pays you, not the bank (original poster claimed it pays the bank).

[SOON2BNSURPRISE]

I ran the numbers on an Earthquake Insurance Calculator. Lots of factors to consider. Everyone is different. Depending on your chosen deductible and what you want to cover will determine your cost to insure. For me I found coverage as low as $68 a month for our home. We have few if any items of value that will break. Our cost is to insure the structure and the cost is based on where you live in the state. After adjusting for the real world I found it would cost me $116 to get what I want with a deductible I can live with, for the house that we own.

[Elliott_CA]

Originally Posted by neutrino78x

Also, the linked article says that earthquake insurance pays you, not the bank (original poster claimed it pays the bank).

OP is correct, article is wrong -- for most insurance policies. My homeowner's insurance has a clause that says that the bank gets paid first. That's why the bank requires homeowner's insurance, it's so the collateral for the loan is insured. And that's fine with me: why would I want to keep paying on a mortgage on a house that no longer exists? Ideally insurance would 1) pay off the note 2)pay the homeowner for lost equity plus value of contents.

[neutrino78x]

Elliott_ca, oh yeah, I see what you're saying. Interesting.