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Old 06-01-2012, 12:58 PM
 
Location: Southern California
890 posts, read 2,545,658 times
Reputation: 797

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My house is a long term investment, I use it, I need it to live and enjoy my lifestyle.

Sure the value has dropped, but I did not buy my house with the expectation that it will be my retirement cash cow, or a flip house for some capital gains.

Earthquake insurance is just that, to insure that my interest in my house is covered just in case it happens.

If you are wondering about how you cannot afford that coverage, perhaps you have a house that is higher than your means.

Life is a gamble, so it buying or not buying insurance for any property of value (or life).
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Old 06-01-2012, 02:16 PM
 
4,106 posts, read 7,829,464 times
Reputation: 4814
Let's say you buy the insurance. A big earthquake comes and your house is not damaged, though some houses are. Will you be disappointed? Will you think, "What a waste of money! I didn't need that insurance after all."

How about instead, you think, "At least I paid in, and now that money is helping the people whose houses were damaged. And I sure am glad my house is okay."

Now you've got a win-win.
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Old 06-01-2012, 02:19 PM
 
Location: Los Angeles, CA
236 posts, read 729,080 times
Reputation: 106
Quote:
Originally Posted by antarez View Post
No it isn't, unless you outright own it or have an enormous amount of equity in the property.
I don't quite understand this statement. You are still responsible for your mortgage in the event of an earthquake, regardless of how much equity you have...
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Old 06-01-2012, 06:46 PM
 
63 posts, read 149,348 times
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I recently did a lot of research on this topic as I was trying to decide for myself.

First, I think the comments you are getting about FEMA bailing everyone out are misinformed. FEMA doesn't give money away; at best it gives low interest loans to pay for damage, but you're still the one paying.

Second, I would look into the California Earthquake Authority website (google it). You can get a lot of good information on quotes, coverages, and deductibles. They also post their financial status online.

Something like 90% of Californians do NOT have EQ insurance. I think a good chunk of this population just didn't bother thinking about it / researching it too much and rather just went with "conventional wisdom".

That being said, IMO the most realistic (i.e. not the "FEMA bailing you out" wish) conventional wisdom argument that I've heard against EQ insurance is that if your house is damaged / destroyed by an earthquake, the deductible is high enough to not make it worth it. The deductible for EQ insurance starts at 10%. So if you have a $500,000 house that's damaged or destroyed in an earthquake, you pay the first $50,000 out of pocket. You have to figure out if you have that sort of cash on hand and if you have enough equity in their property to make it worth it to spend that sort of cash (vs just walking away, losing your equity, and taking a 300 point ding on your credit score).

Another thing to keep in mind is when you get a mortgage for the purposes of buying a home, the loan in CA is by law "non-recourse". This means you can just walk away from the loan. You would of course lose the house and equity to the bank, but the bank cannot go after your other personal assets. If you refinance, however, you do not get this protection, and your refinanced mortage is probably a recourse loan, meaning the bank can go after all your personal assets to recover their losses. This obviously severely limits your ability to just "walk away" from a destroyed house, so it's something to consider.

Finally, if you are buying a condo vs a SFH, it gets more complicated because whether or not the Condo has a master insurance policy is out of your direct control. You can buy earthquake insurance for yourself, but that only covers your possessions and the interior space within your unit. That's not much help when your $10 million building is damaged. Most HOAs do NOT have a master EQ policy. Loss assessment insurance is intended to help cover any sort of capital assessments that your condo association makes in order to repair or rebuild from an earthquake. Even if your HOA has a master EQ policy, you might consider getting loss assessment policy because there will be a large deductible (as previously mentioned) that would result in a capital assessment. Something else in a condo to consider is that even if you are able to pay, you are basically "in business" with the rest of the residents, and if others can't pay, it will mean you have to pay more.

It still comes down to a decision you have to make, but I'm always amazed that many people don't even think about it really. I mean, their home is probably the biggest financial asset and liability for the majority of people...
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Old 06-01-2012, 07:22 PM
 
Location: Declezville, CA
16,630 posts, read 34,721,182 times
Reputation: 16980
Quote:
Originally Posted by california_sam View Post
Fortunately it's not in the expansive soil area (In that case i would have take the insurance).
What does this mean? Are you referring to soil liquefaction, which will affect almost all of the basin and the coastal regions?

Keep in mind, the three faults that LA residents need to worry about are all overdue: Newport -Inglewood (last ruptured 1933), the Southern section of the San Andreas (last ruptured early 1800s), and the Western reaches of the Puente Hills blind thrust fault that runs beneath Downtown.
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Old 06-01-2012, 09:34 PM
 
12,825 posts, read 20,861,575 times
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A small anecdote. Loma Prieta '89 caused enough damage from a combination of knocking things over and structural, to a friend's home, that it easily added up to a substantial amount above the deductible. They had to replace the broken items and fix the structural issues in any case. They had not used their home as an ATM, they were not living paycheck to paycheck, they were not the sort of way-in-over-their heads types who would walk away. I think their mortgage was nearly paid off. Of course they were darned glad to have Earthquake Insurance.

Now if you are already in over your head and someone who never should have become a homeowner in the first place, then maybe I could see not going for it. But in that case, you probably need to be coming up with a general exit strategy from home ownership.
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Old 06-02-2012, 12:49 AM
 
3,876 posts, read 3,395,592 times
Reputation: 2519
Quote:
Originally Posted by Mathguy View Post
1. FEMA isn't going to bail out people that willingly chose not to buy earthquake insurance.

2. Any major insurer is going to pay off the policy quickly and efficiently or face huge fines and penalties. The fact that rebuilding takes a lot of time is moot.

3. It's extremely rare to hear of people having to sue their insurers for coverage so I don't think you are offering a reasonable picture of the situation. I recall seeing some statistics on statefarm after hurricane Katrina and they'd paid out some 95+% withint the first month or so.
What state do you live in ? If a major eartquake hit I seriously doubt that most insurance companies would have the resources to pay off anyone quickly.

As for FEMA they would have SOME disaster assistance , not a bailout. with little or no equity most people would just walk or file chapter 7, then start over.
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Old 06-02-2012, 12:54 AM
 
3,876 posts, read 3,395,592 times
Reputation: 2519
Quote:
Originally Posted by lesallimc View Post
I don't quite understand this statement. You are still responsible for your mortgage in the event of an earthquake, regardless of how much equity you have...
What's there that's confusing you ?

As for responsibility just look at thecountless foreclosures and strategic defaults right now, you would have to be extremely NAIVE to believe that a house severely damaged in a quake with an owner already in a financial bind with little or no equity wouldn't just walk.

Morality and reality aren't always on the same page, not that I condone it. It would probably play out that way.
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Old 06-02-2012, 11:09 AM
 
55,226 posts, read 44,001,328 times
Reputation: 34527
Quote:
Originally Posted by antarez View Post
What state do you live in ? If a major eartquake hit I seriously doubt that most insurance companies would have the resources to pay off anyone quickly.
Sorry but that just isn't something that would happen IMO.

In fact, every state I know of has laws dictating just how fast the insurers must pay people back or face huge fines and penalties.

Generally I think it's 30 days.

That's why you have the insurers use portfolio balancing, reinsurance and utilize things like maximum probable losses etc etc etc.

Now for some of the smaller companies, that aren't well balanced and so forth they could feasibly go bankrupt if a 1 in 500 year EQ hits and this has happened before....but I don't see any major insurer having trouble paying fast.

Heck, many would just turn to a berkshire hathaway and take a short term loan which would be cheaper by far than the damage to their reputation, angry customers and of course fines and penalties for slow paying.
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Old 06-02-2012, 06:06 PM
 
Location: Los Angeles, CA
236 posts, read 729,080 times
Reputation: 106
Quote:
Originally Posted by antarez View Post
What's there that's confusing you ?

As for responsibility just look at thecountless foreclosures and strategic defaults right now, you would have to be extremely NAIVE to believe that a house severely damaged in a quake with an owner already in a financial bind with little or no equity wouldn't just walk.

Morality and reality aren't always on the same page, not that I condone it. It would probably play out that way.
Not naive at all. Just a difference in viewpoints/definitions. I'm a finance person and wouldn't consider foreclosure an option in a situation where I should have/could have been insured. I take my credit score personally.

Confusion cleared up.
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