Should I Get Natural Disaster Insurance For Earthquakes, Floods, And Hurricanes?

Earthquake Fault Lines In SF Bay Area

Hurricanes and earthquakes are a stark reminder of the importance of getting natural disaster insurance. As a long time resident of San Francisco, I wonder if I should get natural disaster insurance for earthquakes every single year.

San Francisco lies close to the San Andreas fault line. It could start shifting at any moment. The last big earthquake was the Loma Prieta earthquake on October 17, 1989 which killed 63 people. Perhaps we are due for the next big one.

California mandates insurance companies send earthquake insurance prospectuses to all homeowners every single year. Each time I look over the pamphlets, I'm tempted to get insurance for earthquakes.

But, I never go through with it because of the enormous deductible of around 10-15%. In other words, if my home is worth $2 million dollars, I'd have to pay the first $300,000 out of pocket before getting anything from the insurance company. Furthermore, the yearly premium on insurance for earthquakes is around $5,000.

Chances are greater damage to my home due to an earthquake will be less than the deductible amount. Hence, I continue not to have earthquake insurance. Here's hoping the big big one never arrives.

Decision Checklist For Natural Disaster Insurance

Here's a helpful checklist of questions to consider before deciding to purchase insurance for earthquakes and other natural disasters. Please spend an hour with your insurance agent understanding your home insurance policy. The more you know, the more you can prepare.

1. Is your home in a high-risk area?

Homeowners tend to downplay the risks they face because hardly anything really ever happens. Even when a hurricane does pass through, chances are high nothing will happen to your home.

If you live in a coastal state, Texas, Louisiana, or Hawaii, you are subject to hurricanes. Those located west of the Rockies, in Alaska, New England, and along the Mississipi River, are subject to earthquakes.

If you live right on the coast, in low lying areas, or near water, you are subject to floods. Basically, disaster can strike anywhere at anytime. You've just got to figure out how risk prone you are.

2. Have you done any disaster mitigation?

After the 1989 earthquake, homeowners in danger zones were mandated to “earthquake proof” their homes with stronger foundations. If you can, consider installing plywood in the side of your ground floor walls to stabilizing the movement. When remodeling, you might want to build a larger retaining wall as well.

All new construction after 1989 also required stricter foundation construction. As a result, buildings are now safer than ever before.

Obviously we won't know how strong our homes are until angry nature comes. But we should believe the more we invest in disaster mitigation, the better we will come out at the other end.

3. How did your long-term neighbors fare in the last earthquake, hurricane, flood?

Before and after I bought my first house, I asked my neighbors how the 1989 Loma Prieta 6.9 earthquake affected our block. One neighbor who has owned his building since 1975 told me not a lot happened.

Some dishes fell off the shelves, but that was about it. However five blocks west of us several houses had to redo their facades due to cracks.

The houses that sustained structural damage were situated 15 blocks away as they were built on top of sand. Inquire with old-time neighbors as much as possible to see what happened to their homes during the last earthquake.

When I bought a fixer in 2019, I saw the owner had installed two huge retaining beams in the garage after the 1989 earthquake. The cost was about $80,000 back then. Check your homes 3R report, its report card.

Here are some warning signs homebuyers should know before buying a house. Not having good records on the home's 3R report is one of them.

4. How much could damages cost?

After speaking with my neighbors and doing more earthquake research, I estimated $25,000 in damages could occur if a similar 7.0 magnitude earthquake hits.

Then, I compared $10,000-$25,000 to the cost of insurance for earthquakes. Taking the deductible + $5,000 in annual premiums into consideration, I decided it wasn't worth it.

It's important to assess realistic estimates of what a disaster might cost out of pocket. Now that I think more of it, $25,000 is probably too low since construction costs have increased over the decade.

5. How big is your emergency safety net?

The less money in emergency savings you have tucked away, the more you need insurance for earthquakes and other natural disasters.

If the worst happens, you want to have enough money saved for emergencies. This way you don't have to dip into your retirement savings, or your children's 529 college savings fund.

Having natural disaster insurance and a reliable emergency fund also protects your relationships with friends and family. Too many relationships are ruined when money gets involved.

6. Is your retirement tied to your home?

Given our homes are often our largest asset, there's no doubt many people count on their homes to provide rent-free security once the mortgage is paid off, or rental income if they are a landlord in retirement.

Some may even depend on their homes to do a reverse mortgage for income. Whatever the case may be, the higher your home is as a percentage of your net worth, the more you need to consider getting disaster insurance.

Ideally, your home is worth no more than 30% of your net worth in retirement. You want a diversified set of assets to generate defensive passive income. If your home's value accounts for over 75% of your net worth, earthquake insurance and other disaster insurance is more attractive.

You can always drop your disaster insurance once your home accounts for a minority of your net worth.

7. Do you have a lot of equity in your home?

This is probably the only situation where having little to negative equity is a good thing if disaster strikes. You can simply walk away from your house without the need to repair it.

Disasters are one of the biggest reasons why people should not pay down their mortgage. As I wrote before, the ideal mortgage amount is $750,000 if you can afford it.

That $750,000 is debt your bank will eat if something bad happens, not you. For those of you who have lots of equity in your home, definitely raise your consideration of getting disaster insurance.

If Things Get Really Bad There Is Some Good

When you have disaster insurance, you're less likely to get assistance from the government. However, government programs exist to help when things get really bad.

FEMA or the Federal Emergency Management Agency can provide temporary housing and grants for emergency repairs. For example, one of my friends received help from FEMA to repair a creek bridge on his land that was destroyed in a severe flood.

Sometimes, the Small Business Administration (SBA) also offers up to $200,000 in low-interest loans for rebuilding.

Just be prepared mentally and financially that rebuilding costs tend to soar when natural disasters strike. This is why insurance for earthquakes, floods and hurricanes can help protect you financially.

Earthquakes In California

Are you still trying to decide if you should purchase insurance for earthquakes? Here's a look at some of California's largest earthquakes and some noteworthy facts.

Magnitude     Date                   Location            Comments
7.9Jan. 9, 1857Fort Tejon2 killed, 220-mile surface scar
7.9April 18, 1906San Francisco3,000 killed, $524 million in property damage, including fire damage
7.8March 26, 1872Owens Valley27 killed, 3 aftershocks of 6.25+
7.5July 21, 1952Kern County12 killed, 3 aftershocks of 6+
7.3Jan. 31, 1922West of Eureka*37 miles offshore
7.3Nov. 4, 1927SW of Lompoc*No major injuries, slight damage
7.3June 28, 1992Landers1 killed, 400 injured, 6.5 aftershock
7.2Jan. 22, 1923MendocinoDamaged homes in several towns
7.2Nov. 8, 1980West of Eureka*Injured 6, $1.75 million in damage
7.2April 25, 1992Cape Mendocino*6.5 and 6.6 aftershocks
7.1Oct. 16, 1999Ludlow (Hector Mine Quake)Remote, so minimal damage
7.1May 18, 1940El Centro9 killed, $6 million in damage
6.9Oct. 17, 1989Loma Prieta63 killed
6.7Jan. 17, 1994Northridge61 killed, $15 billion in damage
6.6Feb. 9, 1971San Fernando65 killed, $50 million in damage

Think Like An Insurance Company

Insurance companies are there to make money. They can only exist if the collective premiums they take in, and the returns they make from the premiums consistently beats the claims they pay out. 

You need to be prepared to FIGHT for every claim. Some insurance companies make it extremely difficult for you to collect, especially during times of low investment return. The horror stories I hear in the health insurance industry are absolutely despicable.

What I recommend everyone do is find a respectable insurance company and concentrate as many policies as you comfortably can so that you build leverage.

For example, bundle your auto, property, umbrella policy, and disaster insurance together. Your agent will love you, and you will be tiered as a higher valuable customer. As a higher valued customer, they will give you less grief during filing, and will also give you the best rates.

Get Disaster Insurance If The Following Applies:

  • You live in an area prone to disaster and plan to live in your house throughout the disaster cycles. Let's say massive hurricanes hit once every five years for the past 100 years. You plan on living in your house for the next 40 years. Disaster insurance is appropriate.
  • It's hard for you to sleep well at night knowing you do not have disaster insurance. A lot of insurance is about peace of mind. If you are a worry wort, disaster insurance provides better value to you than to those who hardly ever worry.
  • You are thinking about selling your house in the next 12-24 months. The worst thing that can happen is that you sell your house because you need the money only to have your house get destroyed.
  • Most of your net worth is tied up in your home. The more of the home you own, the more you have to lose, but the insurance coverage is the same. Therefore, you get a better return on your disaster insurance for your assets.

I pray the big one never hits San Francisco just as I pray all of you never have to experience such disaster.

Hopefully this article will help you make a more informed decision about purchasing insurance for earthquakes and other natural disasters.


Here are some great recommendations to help you save money and grow your wealth.

Compare Insurance Quotes For Free And Save Money

If you’re in an area prone to natural disasters, explore as many homeowners insurance policies as possible. And look into the costs and coverage of natural disaster insurance.

Compare the insurance premiums to the cost of a total rebuild and make a calculated decision. There is no such thing as retroactive insurance!

Each year that goes by without paying insurance premiums is a win. But after many years of winning, you might want to use your winnings to sleep well for the rest of your life.

PolicyGenius also provides free comparison quotes for life insurance, renters insurance, home insurance and more. The make it easy to get free quotes in minutes from the top insurers in the US. Start exploring the latest policies today and save.

Manage Your Finances In One Place

One of the best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Empower. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize your money.

Before Empower, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances on an Excel spreadsheet.

Now, I can just log into Empower to see how all my accounts are doing, including my net worth. I can also see how much I’m spending and saving every month through their cash flow tool.

Empower has an amazing Retirement Planning Calculator that pulls in your real data and runs a Monte Carlo simulation to give you deep insights into your financial future. Definitely run your numbers through the free tool to see how you are progressing.

Personal Capital Retirement Planner Tool
Are you on track? It's FREE to check out

Learn More, Make More Money

Here are some additional resources I’ve put together that will help you on your financial journey to earn more, save more, and hopefully double or triple your income!

Subscribe To Financial Samurai

Listen and subscribe to The Financial Samurai podcast on Apple or Spotify. I interview experts in their respective fields and discuss some of the most interesting topics on this site. Please share, rate, and review!

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. 

21 thoughts on “Should I Get Natural Disaster Insurance For Earthquakes, Floods, And Hurricanes?”

  1. Thank you for writing this! As someone with a decade in the insurance industry, this helped to reaffirm my thought process as well. I have a rental property in Indio, CA and the thought of not having earthquake insurance was overwhelming (being from Minnesota and having no experience with earthquakes outside of what I’ve seen in movies).

    I’ve always wondered in the back of mind if purchasing earthquake insurance was an emotional decision vs. an optimal decision for me. As always, a quick search on your site and I had amazing advice/perspective waiting for me! You’ve thought of it all. Thanks for the great work you do, Sam!

    1. You’re welcome Blaine! I’m glad this post helped you make a more optimal decision about your earthquake decision needs. We had a small 3.6 one here in San Francisco last week.

      I did end up remodeling a fixer and bolstering the ground floor walls with plywood. Then I added a large retaining wall and more walls during the remodel, which made me feel better.

      Happy holidays!

  2. I had never thought of a huge loan as effectively an insurance policy for catastrophic events. That is an interesting idea. Is it always the case that you can just “walk away” from a home loan with no expectation of repayment? If so, maybe I should take out a second (line-of-credit) mortgage and keep it maxed out? Could I even withdraw the line-of-credit money right after an earthquake, or would it be a problem accessing the line of credit if the loan were NOT already tapped out at the point of the earthquake? Thanks,

  3. David Landen

    I live in Florida and our entire street is in a flood zone so we have to have flood insurance. One thing to keep in mind is that there is flood insurance that covers the contents of your home and another that covers the actual property. It is expensive to have either one! Make sure you read the fine print to ensure you are getting what you need!

  4. WE bought earthquake insurance this year. It was surprisingly affordable (under $500). The caveat was that there are huge deductibles. but, in my evaluation, that’s okay. I’d rather pay a deductible of several thousand dollars to save $10’s of thousands when the earthquake hits. It’s a certainty there will be an earthquake, the only question is when and how bad.

  5. Perfect timing with this article! I happen to live near a potential earthquake site as well, and have been getting a lot of letters in the mail recently asking me if I want to enroll in earthquake insurance.

    I can’t say I’ve put too much thought into this just yet. But this may just be the heads up I need. Thanks for taking the time to write this!

  6. My own thought is that the odds are remarkably low for a total loss, even in a high-risk area like San Francisco, that I will accept that risk. In Sam’s example, 20 years premium at $5K/yr is $100K, plus the 15% deductible of $300K means an outlay of $400K on a $2mm home. I am not sure of the details (and I’m not asking!) on the land/structure ratio for Sam’s example, but one consideration is that home values include the land (location, location, and that other one) and rebuilding is much less. In my case, the land is 40% of my home’s value.

    If the worst did happen, I would most likely want to take my $400K and start over somewhere else, rather than fight through years of claims and rebuilding and living elsewhere anyway (assuming I survive).

    But everyone’s circumstance is different, and as one builds net worth it is a valuable thing to evaluate and re-evaluate.

    1. You are spot on regarding the analysis. The hope is to last 20 years of disaster insurance avoidance to be able to reap the rewards.

      Land is worth even more a percentage of total home value in places like SF. In my case, it’s probably 60-70%. Unfortunately,
      Cost per sqft to build high end is now reaching $350-$400/sqft, so this example would only be able to build a 1,200sqft home.

      Lots of different permutations in our calculations. The important thing is for everyone to call, inquire, and do the math to no what they are dealing with!

      1. Absolutely. Something I failed to make clear above, but will hopefully prove of value to a few of your readers, is that I overinsured for a number of years on both home and catastrophe insurance. I insured for the market (instead of replacement) value of my home, when 40% of my premium was essentially insuring dirt. Just one of my many money mistakes; if your blog was around then, it would have saved me both money…and regret!:-)

  7. I think I’ll be doing more research on this. I am not exactly sure where to start but I guess I’ll figure it out! Never thought of disaster insurance like this.

  8. We went through this process this year when our insurance company dropped coverage on part of our structure (the pool & cage). Details here –

    But we basically figured out that when you considered capped coverage limits during hurricanes and tropical storms, deductibles, and premiums, we felt better off taking a calculated risk of not purchasing coverage that would include those areas. We figured out our “breakeven” and went with it. So far, so good.

    1. Capped coverage limits should be adjusted for the amount we are willing to pay for coverage. If people knew Insurance companies wouldn’t screw them over all the time, maybe more people would get more insurance and the insurance companies could make more!

  9. I survived the Northridge earthquake without insurance. I sold that property and moved to a townhouse that had extensive damage in the earthquake. It was repaired and meets 1996 building codes. I choose to have earthquake coverage because it costs me a few hundred dollars a year. I only have a 10% deductable too. Since I live in a condiminium I could be assessed for the communitiy’s deductible. Last time it was $17K. I shopped my insurance extensively and found a AAA rated company that covers (HOA) assessments from a loss.
    I can agree with your logic regarding your circumstances and still take disaster insurance coverage for my place. My approach is not that different from yours, but my cost is significantly less.

    1. 10% deductible is not THAT bad, but it is still a lot of money if you live in even a $500,000 house. What is the annual premium?

      Why did you decide to move into a place that got crushed by the earthquake? Was it a good deal? Thx

  10. Wow earthquake coverage is more expensive than I thought! I don’t think I know anyone who pays for it here. Hopefully the next big one won’t happen while I still live in the Bay Area. I do have disaster kits at work, home, and for the car though!

  11. In NJ earthquake insurance doesn’t make much sense (for now:-)

    Hurricane is covered by regular home insurance policies with 5-15% deductible (plus I was told by my insurance company a storm in NJ rarely meets the hurricane criteria if you live inland, so all good here)

    Flood is only through FEMA, I have yet to see any insurance company offer private flood insurance. This is something I would actually give up in a heartbeat, the moment my mortgage is paid off (we are actually paying it down aggressively with that explicit goal in mind) – it’s mandatory for us because a quarter of our backyard is in the official flood zone. It’s ridiculously expensive (4 times our home insurance premium), and it covers almost nothing inside, just structural elements if you read the fine print. Unless you are at the coast and at risk of complete destruction, self-insurance is a much better option. However try going and convincing our mortgage company.

  12. RichUncle EL

    Due to the fact that many neighbors did not get affected by the last earthquake I would do the same and continue to build up the home repair fund.

  13. This is exactly the article I was going to ask you to write. I co-own three properties in the LA area, and I too don’t have earthquake insurance. Thanks!

Leave a Comment

Your email address will not be published. Required fields are marked *