Earthquake Insurance for the Rich
Why The Rich Should Consider Earthquake Insurance.
Why Older Homeowners Should Consider Earthquake Insurance
Why earthquake insurance becomes more useful as you pay off your principal
Have you been paying your mortgage on your main home faithfully for the past 15 years? Are you starting to feel like you are moving forward?
Be careful, may be in greater danger of losing the equity balance in your hard-fought home if you live in a country with earthquakes. Although paying for your home is generally a good thing, there are new issues to be aware of. How exactly is that?
As you carefully pay off your home loan and get richer, you slowly build a “nest of eggs” inside your nest (at home). However, many people hope to take advantage of that capital when they reach retirement, either by selling the house, refinancing, or possibly through a reverse mortgage.
But as you build up funds in your home, you need to make sure they are properly protected. Your home (homeowners) insurance should be rock solid, with a highly rated and respected insurance company. It should be in the broadest coverage form possible. However Even the most comprehensive form of home insurance excludes two main dangers. These two dangers can both be covered in separate ways: Floods and earthquakes. Sure, flood insurance should be considered, and in high-risk flood areas, it is often required by the lender. But banks do not require earthquake insurance. Therefore, I find that it is rarely, if ever, considered.
Time to consider again:
15 years ago, earthquake insurance was rarely sold and was quite expensive. The time has changed. Earthquake insurance for most structures can be purchased through the California Earthquake Authority (CEA) and through several independent earthquake insurers such as ICAT, Geovera, Palomar, and Arrowhead. There is more. These companies are now openly competing for your business. The landscape is slowly changing. Higher deductibles, separate deductibles, and extended coverages for things like swimming pools have really made it more affordable and personalized.
How much is your Nest Egg worth to you?
If you really hope to retire on your home equity, you must be on the defensive. The best defense for a home is good insurance. California has had many devastating earthquakes in the past and there will likely be more in the future. Although houses are built according to much stricter rules and safeguards, no house, regardless of what you may believe, is impervious to all earthquakes. Destruction of your home could take years to rebuild, and entail costs that far exceed your wildest expectations based on the concept of increased demand. What is the increase in demand? Increased demand is the main reason costs skyrocket as resources become more limited due to the size and scale of an event. Do you think it is difficult to hire a contractor now? Wait until half of the city has been destroyed by a major earthquake.
Incomplete destruction:
Many people falsely believe that just because their home is not destroyed by an earthquake that everything will be fine. Unfortunately, from past earthquake experiences, even if an earthquake does not destroy your home, it can lightly hit the foundation and trigger what is known as a Red Label situation. If your home has a red tag from a local government official, your home will need to be repaired before you are legally allowed to reside there again. Do you and your spouse have enough money to rebuild your foundation? And live in a hotel for two years?
How to protect yourself:
Many homeowners believe that their best defense against an earthquake is to use their money to modernize their home with the latest technology. Bolt your home to the foundation, plywood, and the like. Others believe their money is better spent on earthquake insurance. However, both strategies involve doing something to protect your investment from a known calamity. Simply ignoring it will not allow the future problem to go away. A great earthquake is coming in California. Personally and professionally, I think the best defense is to do BOTH “: remodel your home to modern standards AND buy an earthquake policy with the maximum deductible you can afford.
A little preparation on your part can potentially prevent a poverty-stricken retirement. Consider all of your options to help protect your savings.
Notes: Talk to a licensed contractor in your state when considering home renovations after an earthquake. Likewise, when considering adding, changing, or canceling any insurance policy, always speak with an authorized agent in your state or jurisdiction. The rules, regulations, and forms of insurance coverage may vary from state to state.
Johnson is an independent insurance broker based in Marin County, California. You are licensed to apply for and provide insurance services only in the state of California. License CA 0H11625.