Monday, October 27, 2014

When insurance shakes you up

Insurance. Technically and legally it's not gambling, but it still involves the placement of a bet. You put down a specific amount of money, but if something happens to the insured item - your home, your car, or your own body - you'll get some money.

A key component of most insurance polices is the deductible. If I get in an extremely minor fender bender and my car suffers a whopping five dollars worth of damage, my auto insurance policy won't pay me anything. Now if the car suffers five thousand dollars worth of damage, it's a different story.

Deductibles can be very low, or very high. Oddly enough, the most valuable thing that we insure - our own bodies, in the form of health insurance - often has low deductibles. Auto insurance has higher deductibles, depending upon the policy you select. Homeowners' insurance also has deductibles at a particular level, but homeowners' insurance does not include all of the possible things that could happen to your home and its contents.

Which brings us to earthquake insurance:

[Tom] Fuller, a public relations consultant [in Napa], said the repairs from last month’s magnitude-6.0 quake won’t come close to his $48,000 deductible — the amount of structural damage his home must suffer before the insurance company becomes liable for major repairs.

Yes, that's right. You need to suffer somewhere around $48,000 in damage before the earthquake insurance policy (managed under the auspices of the California Earthquake Authority) pays a single penny. Even on a less expensive home - not that there are many of those here in California, even with the housing bubble burst - you're looking at $10,000 or more of earthquake damage that you have to cover on your own.

What does this mean?

Only 6 percent of Napa County homeowners have earthquake insurance, compared to 10 percent of all Sonoma County and California residents, according to the California Earthquake Authority, the public entity that works with private insurers to offer residential coverage.

Only 9 percent of state businesses had quake insurance last year, according to the state Department of Insurance.

The number of residential policies has declined statewide from 1.2 million in 2004 to 1.1 million last year.

In California, auto insurance is mandatory; other types of insurance, including earthquake insurance, are not. This may be unique to California - we really, REALLY love our cars. And I'll admit that I don't know the details of other types of catastrophic insurance, such as tornado insurance in Kansas, hurricane insurance in Florida, or marijuana intoxication insurance in Colorado.

But in essence, the vast majority of Californians who don't have insurance are engaging in a bet of their own. They are betting that if an earthquake does damage their homes, the amount of damage will be LESS than the deductible.

Of course, there's always a chance that the bet can be lost.
blog comments powered by Disqus