CNN Article on Earthquake Damage

A recent article found on CNN compares an earthquake damaged home to “a giant lawn ornament that’s going to bankrupt” the homeowner. However rude this clickbate headline/sub headline is – it brings to light the need and value of earthquake insurance. As good as the sentiment is – the overall earthquake insurance information is sub par.

The article An earthquake destroyed their home days before Christmas. They still have to pay the mortgage, was originally publised July 2nd of 2023 and was written by Nouran Salahieh. It can be found on CNN’s website.

Also at QuakeCov – Read about:

The Alarming Crack of Doom

Is there Fungi on your Earthquake Policy

The Math of Quake Insurance

The article discusses recent quake activity in the Northern California town of Rio Dell on December 2nd 2022. The seimic event killed at least 2 people according to the article. It was a 6.4 magnitude quake.

The unfortunate owners of the home, the McIntoshs, found that after the earthquake that “Their house [got] red-tagged.” Red Tagging, which is not defined well in the article, is defined by 911 Hazmat as “mean[ing] a building is 100% unsafe for commercial, industrial, and residential use, often signaling its impending demolition if not properly remediated.” A house that is red tagged is one that can no longer be lived in.

The CNN article states that the cost to fix or rebuild the house “would cost an estimated $150,000.” And ““It’s not worth anything,” said McIntosh, who had just found a buyer for their home when the jolt hit. “Now I literally have a giant lawn ornament that’s going to bankrupt me.”

CNN reports that “Rio Dell is in the most seismically active part of California, near the Mendocino Triple Junction, an offshore spot where three tectonic plates meet near Cape Mendocino in Northern California.” The article is backed up from a statement from a Deputy Director of the USGS Earthquake Science Center – Keith Knudsen: saying of the “spot known as the Mendocino Triple Junction – “This area is the most seismically active part of California,”

Unfortunatly for the public, CNN spends quite a bit of wasted time discussing that the “quakes were not a federally declared disaster.” Later they admit that “Even if a quake triggers a federal disaster declaration, people with extensive damage still may not receive enough cash…” Additionally “FEMA, when it steps in, can provide money for housing assistance, like a temporary place to stay, or for home repair. The maximum it gives for housing assistance is currently $41,000 per household.” [QuakeCov takes exception to the term ‘may not’ – as in, in California – its hard to imagine almost anyone does, but that can be an story for another day.]

A simple back of the envelope calculation on that $41,000 in potential federal money is nothing compaired to $150,000 in damage. In our opinion – they [CNN] had the story – and then… forgot to go through the numbers for consumers. Therefore – QuakeCov thought we take a take a quck stab at reviewing this for our post.

A couple of basics here:

$150,000 to fix a house from earthquake damage is a low amount compaired to what it might cost outside of Los Angeles. That does not mean that its not a lot of money, rather its a lower cost in this state.

Next – even if the Homeowners had earthquake insurance, say a $500,000 policy, they likely would have had a $75,000 deductible at 15%. Which is a fairly common deductible. The CNN article does make mention of earthquake insurance with “premiums reaching thousands of dollars a year.” Not sure where that number comes from. Its possible the premium could have been $3,000 or $4,000 but it also might have been $900. No specific proposal was provided.

However even if the insurance was $3,000 per year. Does that seem like too much money if you lived in what the USGS considers the most seimically active areas? $3,000 a year for 30 years is $90,000 in non adjusted inflation dollars. $90,000 in insurance premiums vs a $75,000 net payout [$150K less $75 dedutible.] So in this situation it might indeed make financial sense to forgo the earthquake insurance premium. The problem of course, is that the numbers are likely not accuate. CNN it seems, just did not go into any actual real earthquake insurance details here.

A More Accurate Estimate:

According to the CEA’s own site “Get your Free Estimate” a $500,000 Coverage A, with a 15% dectuctible, in the 95562 zip code, for a two story 1950s era home on a slab foundation might cost as little as $1,294 per year. A $1,300 policy paid for 30 years is just $39,000 in non adjusted inflation dollars. Therefore a $1,300 premium is a deal to get back when for that same $75,000 payout. $39,000 or $75,000 – you decide?

Of course our super quick back of the envelope analysis has lots of holes in it. We really dont know all of the details of the home, nor the rebuild. Was it bolted to the foundation? Was it owner occupied, one might think – but you don’t know. However I would wager that our analysis is more in depth than CNN’s quick quote.

In our opinion discussions of money from the federal government in disaster prone areas are a complete side show. The federal government is not going to be able to make you whole following a major seismic event. Period. Earthquake insurance is not going to make you completely whole either – but it will do a far better job.

The CNN article can be found here.