SHAKEN, NOT STIRRED

When Mother Nature decides that it is time for a little rouse, it happens the way 007 likes his martinis – “shaken, not stirred.”  After all, we live on an ever-evolving ball of violent, volcanic eruptions and continuously mashing and grinding tectonic plates.  But, for some reason, we decide to densely populate exactly where the potential for impending devastation to our lives is the greatest.  Take, for example, California, where we have built some of our largest cities right up as close as we can possibly get to the San Andreas Fault, arguably one of the most dangerous faults in the world.  Why?  I suppose, for some reason, we are compelled to live on the edge; it stimulates our senses and keeps us sharp, just like…you guessed it…007.  No, really, what are we thinking?  The explanation is actually very simple – we just cannot get our brains wrapped around the potential danger.  Here is what our hardwired brains say, “disasters don’t happen, and if they do, they will never happen to me.”

This is exactly why most of us do not purchase earthquake insurance.  Granted, earthquake insurance can be expensive, which can be an economic deterrent, but that is really not what prevents us from buying it – our brains are just not wired to comprehend the objective risk.  In other words, unless we have actually experienced a catastrophic disaster ourselves, we are not likely to fully prepare for one.

Remember the episode near Mineral, Virginia, just a few weeks ago, where the magnitude of the earthquake was reportedly 5.9 on the Richter scale?  Despite the fact that it’s been over 100 years since the last earthquake of that magnitude in that general area, the risk is higher there than other areas along the Eastern Seaboard, because it is sitting right on top of a tectonic plate.  As a result, the resulting damage costs have been estimated at somewhere between $200 million and $300 million, with less than half of that insured.

Earthquake insurance can be expensive, potentially adding between 10% and 100% to the current policy premium, and it carries a high deductible, somewhere between 2% and 20% of the Coverage A.  But, it is catastrophic insurance and is not intended to provide protection against minor incidents of damage.  In other words, it is designed to protect against major or total devastation and the loss of most, if not all, personal contents.

Simple Example:

Current Coverage A = $400,000.00 (Dwelling)

Annual Premium      = $900.00

Deductible                = $1,000.00

With Earthquake Endorsement

Annual Premium      = $990.00 – $1,800.00

Deductible                = $8,000.00 – $80,000.00 (For Loss Resulting From Earthquake)

The cost of earthquake insurance is dependant upon a number of variables, such as the age of the building, the location (proximity to a fault and the stability of the soil) of the property and the type of construction (frame or brick).  In other words, the cost of EQ insurance for an older, brick home in Hayward, CA, would be a heck of a lot more expensive than a newer, stick-built home in St. Paul, Minnesota.  Did you know that only 12% of those who carry fire insurance in California also buy earthquake insurance?  If you live in California, or own property there, earthquake insurance is available, check out the California Earthquake Authority (CEA).

To experience an earthquake, at least one of any sizeable magnitude, is unsettling to say the least, but if you feel you might be a little over exposed and a little underinsured, contact your insurance agent to discuss your options.

None of us live in an air tight, bomb-proof bunker, and risk will always be a part of our daily lives, so try not to stress about it – sit back, try to relax and if you are still a little uneasy about it (and if you’re so inclined) have a tall, chilled martini – shaken or stirred (usually the bartender’s choice anyway).