Preparing for disaster: earthquake insurance for your home or business
With the devastating financial toll of the Feb 2011 earthquake in New Zealand predicted to reach $16-billion, many people in British Columbia are considering whether they should insure their homes and business against losses due to earthquakes. And with good reason.
According to the Geological Survey of Canada, there is approximately a 10% chance that a subduction (oceanic plate) earthquake – similar in force as the catastrophic earthquake that killed over 300,000 people in the Southeast Asia – will occur off the coast of BC in the next 50 years.
There is a 12% chance that a crustal or shallow earthquake – similar to the Christchurch earthquake – would strike Vancouver in the next 50 years. This type of earthquake could easily cause over $30-billion of structural damage to the city
Why should I have earthquake insurance?
A Habitat Insurance, we believe that the main objective of insurance is to protect you from a devastating loss from which you would find it difficult to financially recover. A home or business is usually the most valuable asset that you will ever own. So you must ask yourself, “Could I easily recover without financial assistance if my home or business were damaged or destroyed by an earthquake?” If the answer is no, you should seriously consider buying earthquake coverage.
Facts about earthquake insurance in BC
Earthquake insurance provides coverage for loss of or damage to personal property and buildings. It is optional coverage in all property insurance policies.
Earthquake rates are on the rise: during the last 12 months, we have noted that many insurance companies have increased their premium rates and, with large losses such as those in New Zealand, this is a trend likely to continue.
If you own a detached home and have earthquake insurance, you will have coverage for the building and a certain percentage of coverage will be “built in” to the policy for personal property. For example, a house valued at $500,000 replacement cost will be insured at $500,000 building cost with 80% ($400,000) for personal property. (Depending on the insurance company, lower limits for personal property can be chosen. )
Insurance deductibles are always higher for losses due to earthquake. Your house insurance or business policy may state $500 to $2,500 deductible for specific perils such as water damage. Earthquake deductibles are typically stated as a percentage of the total loss. So, if you have a 5% deductible on your $500,000 home, you will be responsible to pay the first $25,000.
A special note for condo owners about earthquake insurance
A condo owner policy provides coverage for your personal property, not the building. (The building should have its own separate strata policy with earthquake coverage. ) You may also choose to add earthquake coverage to your condo policy. We highly recommend that you do this, as your policy will can provide up to about $25,000for building earthquake deductibles coverage.
To illustrate the point more clearly, imagine this scenario: your building is damaged/destroyed by an earthquake. The condo owners will be responsible for paying the building earthquake insurance deductible. A large strata building can be easily valued at $20,000,000; a total loss with a 10% deductible would result in a $2,000,000 earthquake deductible to pay. If there is not enough money in the strata’s reserve fund, the remainder of the deductible to be paid will be divided between all of the condo owners. If you have a condo owner’s policy with earthquake coverage, your insurance company will pay your portion of the deductible, up to the indicated policy limit. If you don’t have earthquake coverage, your policy will likely pay no part of the earthquake deductible.
Condo policy limits can vary substantially for insurance deductible coverage. Check with your broker about this important point.
How to pay less for earthquake coverage
Here are a few ways to reduce your premiums for earthquake coverage:
Location: Premium rates for earthquake insurance in the Lower Mainland are highest for areas such as Richmond and parts of New Westminster, which would likely be most devastated by an earthquake. You will pay lower rates elsewhere.
Deductible: Ask for a higher earthquake deductible on your insurance policy. For example, the standard earthquake deductible on your business or house insurance policy may be 5%. You could opt instead for a 10% deductible. Keep in mind that your deductible payment will also be much higher in the event of an earthquake claim.
Choose a lower personal property limit: If you are home owner, some insurance companies will allow full value coverage for the building and a lower limit for personal property. Ask your broker if this option is available.
If you have any questions about earthquake insurance for your home or business in British Columbia, or you would like a quote, please contact us:
Habitat Insurance Agencies, Ltd
Grace Catao – Managing Partner Tel. 604-438-5241 / Cell 778-997-2583
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Disclaimer: This article is designed to provide information for personal use only. Please consult your professional insurance broker for further information. Habitat Insurance Agencies Ltd is not responsible for any legal disputes of this matter.