Earthquake Buydown Insurance: Understanding Your Deductible Before the Ground Shakes

For homeowners in earthquake-prone areas, having earthquake insurance is an important part of protecting your property. But there is another number on your policy that deserves just as much attention: your earthquake deductible.

Unlike the deductible on many standard home insurance claims, earthquake deductibles are often calculated as a percentage of your home’s insured value. That can leave homeowners responsible for a significant amount before their primary earthquake coverage responds. An earthquake buydown policy is designed to help reduce that financial burden.

What Is Earthquake Buydown Insurance?

Earthquake buydown insurance is a supplementary policy that works alongside your primary earthquake insurance. Its purpose is not to provide additional insurance for earthquake damage itself. Instead, it helps reduce the amount of the earthquake deductible you may have to cover out of pocket when a qualifying claim occurs.

For example, imagine your home is insured for $500,000 and your earthquake coverage has a 20% deductible. That means your earthquake deductible would be $100,000.

With an earthquake buydown policy that effectively reduces your deductible to 5%, your portion could instead be $25,000, depending on the terms and limits of your policy.

That can make a substantial difference when you are trying to repair or rebuild your home following a major earthquake.

Why Earthquake Deductibles Matter

Earthquake deductibles can represent tens of thousands of dollars for homeowners and condo owners. Because they are often percentage-based, the amount you may be responsible for increases along with the insured value of your property.

For example, a 15% deductible on a home insured for $600,000 would equal $90,000.

That means having earthquake insurance does not necessarily eliminate the financial impact of a major event. Homeowners should also understand how much they would need to contribute before their insurance coverage begins to respond.

Research discussed by the Insurance Institute of Canada highlights this issue. Modelling of a major earthquake in the Vancouver area found that many insured homeowners could experience earthquake damage that remained below their policy deductible.

For homeowners, the takeaway is simple: having earthquake coverage is important, but understanding what you could actually be required to pay following a loss is equally important.

How Does an Earthquake Buydown Work?

A buydown policy works with your existing home or condo insurance rather than replacing it.

To qualify, you generally need to have active earthquake coverage on your primary insurance policy. When a qualifying earthquake claim triggers that underlying coverage, the buydown policy can help cover a portion of the earthquake deductible, subject to its own limits, deductible, conditions and exclusions.

The amount of coverage and cost can depend on factors such as:

• The insured value of your home or building
• The deductible percentage on your primary earthquake policy
• Your property’s location and earthquake risk
• The type of property or structure being insured

An Important Detail: When Does the Buydown Apply?

This is where understanding your policy wording becomes particularly important.

A buydown policy is not necessarily designed to pay for every earthquake-related loss that falls below your primary earthquake deductible. Depending on the product, the underlying earthquake insurance may first need to be triggered before the buydown coverage responds.

For example, if an earthquake caused damage that did not meet the requirements for a claim under your primary earthquake policy, the buydown coverage may not respond either.

Because products and policy wordings can differ, it is important to understand exactly when your coverage applies, how much of your deductible may be covered and what portion you would still be responsible for.

A Navacord broker can help explain these details and review how your earthquake coverage would work in different loss scenarios.

Is an Earthquake Buydown Worth Considering?

For many homeowners, the question comes down to financial preparedness.

Look at the earthquake deductible shown on your current home insurance policy and ask yourself: If a major earthquake happened tomorrow, could I comfortably cover that amount?

If the answer is no, earthquake buydown insurance may be worth considering.

It can be particularly useful for homeowners who want to reduce their potential out-of-pocket exposure while continuing to maintain earthquake protection on their primary home insurance policy.

It is also important to remember that earthquake buydown coverage is not a replacement for your primary earthquake insurance. It is an additional layer designed specifically to help manage the deductible associated with a qualifying earthquake claim.

Know Your Earthquake Risk Before You Need Your Coverage

Insurance is most useful when you understand how it will respond before a loss happens.

Reviewing your earthquake deductible now can help you identify a potentially significant financial gap in your coverage.

A Navacord broker can review your existing home or condo insurance, explain your earthquake deductible and help you determine whether earthquake buydown coverage makes sense for your property and financial situation.

Talk to a Navacord broker today to learn more about earthquake buydown coverage and make sure you understand your protection before you need it.