As the water began to drain from New Orleans in 2005, we learned that most homeowners in New Orleans did not have flood insurance, because it supposedly "low risk" areas. More than 60% of the owners of houses and apartments must rely on their savings and government support limited to rebuild New Orleans - with costs calculated for the owners and taxpayers.
Could the level of disaster, particularly the level of uninsured disaster happen in California? Less than 15%California Homeowners covered by earthquake today, because of its high cost, "do not happen to me or my house" factor, and mortgage lenders without their own coverage. The next big earthquake causes billions of uninsured losses - but the earthquake insurance really worth the high cost?
Earth Quake
How did we get here?
The state of California requires that all homeowners insurance to offer earthquake insurance providers at least (although at great expense). Until 1994 it was generallyavailable - but led the high cost of damage to the Northridge earthquake in 97% of home insurance provider pulling out of the State of California. In response, the California Earthquake Authority by the legislature of California made an offer earthquake insurance.
What is the Earthquake Authority, California, and how it works?
The California Earthquake Authority provides two-thirds of earthquake policies in California, for sale by its members, providers,such as Allstate and State Farm. Buy a home policy through their regular insurance agents, but the policy is actually a CEA policy.
The CEA currently has approximately $ 7200000000 to pay for the credits, which they say is enough to pay for unforeseen damage (Loma Prieta in 1989, had $ 6 billion in total damages). If the loss exceeds $ 7200000000, then any claim would be paid a proportionate share of their losses - as opposed to a regular insurance, which promises the actual paymentDamages under the insurance policy. He can not help the state of California to pay the claims from the general fund.
The policies also have a high deductible - typically 15% of the value of the house. In other words, your home for more than 15% of its value may be damaged before the insurance begins to pay. So this is not insurance for cracks in the driveway - is significant structural damage to your home. The policy should also pay for limited content (from 5 K) and loss of use(Starting at $ 1500).
Because earthquake insurance is so expensive?
Insurance premiums are calculated based on probabilities - the probability that a house is like your grown up in an environment like yours, or a driver for the capture, as you have an accident. With data from millions of families, these probabilities can be calculated with reasonable accuracy. But no one can safely predict the likelihood that an earthquake strong enough to damage your home.
And,As you can imagine, is an earthquake or flood damage from a storm, widespread, potentially for thousands of square miles - instead of one or a few tens of houses, as in a fire. As such, the insurer would have had zero complaints or billions of dollars to pay claims - too much variance to plan properly or the exact price.
We are really at risk here in San Jose?
According to the USGS, there is a probability of 62% that an earthquake of 6.7 or higher (as arethe Northridge earthquake) in the Bay Area for the next 30 years. In my zip code (San Jose, CA 95126), the USGS estimates a 80% chance of an earthquake of 6.0 and a 20% chance of a 7.0, in the next 30 years. If you consider that depends in a high risk of the risk of earthquakes - I think a high risk of moderate earthquakes, and a rather low risk of a major earthquake in the next 30 years.
But as with any problem involving real estate - it's all local. Where is your homeis really serious, the risk - basic rock, reclamation of land from the bay, type of soil, near water courses, the actual distance from the epicenter - that can affect any damage.
But, of course, many earthquakes occur when the USGS was not even aware of a fault line - and you never know when or where it's going to happen until it happens.
I need to get earthquake insurance?
Factors to consider:
Could afford to rebuild your homeSavings and investments? You can afford to pay the high cost of insurance, for an indefinite period? It could make payments on your current mortgage and a new loan for the reconstruction? You can reduce potential losses by tightening your roof, walls and foundation walls for example? What is your tolerance for risk of an earthquake? What is the risk to the ongoing construction (type, age, foundation)? What are the risks of your specific site (soil type, afterknown errors)?
They are worth the costs?
Suppose that a house would cost you $ 250K for the reconstruction, we have the home for the next 30 years and their earthquake premiums $ 1,200 a year. Over the next 30 years would total $ 36,000 in prizes (assuming no increase contributions in order to simplify the calculations) are.
Instead of taking the insurance, the premiums are invested in a diversified fund. With a yield of 8% per annum, it would have $ 135,000(Before taxes) in 30 years .* But of course as long as the total in 30 years, not in the first year - that is, if the earthquake happens tomorrow, you do not have the money.
The deductible is another great turning point for many homeowners. The insurance pays only for the serious structural damage, no broken dishes or cracked driveways - which means it is less likely that you will use. However, note that there is no need to use the money for the deductible - you can not decideundertake the cost of repair or reconstruction, or you can go for an SBA (as explained under the assumption of a federal disaster area) for the loan are deductible to pay.
Why Not Just Get federal aid, or "Walk Away" and leave the property to the bank?
The federal government would probably have access to the SBA loan, if the area declared a federal disaster area (small, no company is required). However, the $ 200K maximum loan SBA is not enough to make your new home - and you need a loanto pay (in addition to the current mortgage).
If you refinanced your mortgage, you have a mortgage application - which means that not only the bank foreclose on the property in case of nonpayment, the bank can come after your personal assets and future income in case of non-payment. So you can not leave alone, especially if you have a good income and a few personal possessions. The Bank can help by shifting payments to pay off for some months, but still needsLoans.
Last thoughts
We have earthquake insurance on our home page. Our house was built not in the earthquake of 1906 (so who knows if it would), it is 75 + years and is not bolted to the foundation, and we have a mortgage refinancing. For my family, insurance premiums in the value of peace of mind in the event of a disaster earthquake. This is exactly what insurance is for - the "you never know."
* Calculations ignore inflation
Earthquake Insurance in California
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