Insurance. What would we do without it? Though it seems impossible, there was a time when insurance on anything didn’t even exist. Unfortunately, the early beginnings of insurance are unclear. Over the centuries there have been key writings uncovered that give us some ideas of it’s beginning s. But as to an actual moment in time when the first item was insured, no one really knows.

There are theories that insurance goes back to the early days of the Babylonian traders at around the 2nd millennium BCE. They created a system which was recorded in the famous Code of Hammurabi around 1750 BC. This system was practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment he would pay the lender an additional sum in exchange for the lender’s guarantee to cancel the loan should the shipment be stolen.

As a business itself, the first recognizable form of insurance started in Great Britain in 1666. This was in reaction to the “Great Fire Of London.” Because of this incident fire became a growing concern in England. Another major concern in England during the time was marine insurance because of England’s position in the world of sea trade. Some of the early insurance companies of the time were The Sun Fire Office, Royal Exchange Assurance and Hand In Hand.

As was stated above, there were some early writings that point to the first insurance companies and types of insurance. Below are a number of these writings.

From 1680 the following memo was found. “Mr. Newbold, London’s Improvement and the Builders’ Security Asserted, by the apparent advantages that will attend their easie charge, in raising such a joint-stock as may assure a Re-Building of those Houses which shall hereafter be Destroyed by the Casualties of Fire.” This memo appears to point to the beginnings of fire insurance. There were many other memos found during that same time period from 1680 to 1700 all related to fire insurance companies.

In 1697 writings were found to show the beginnings of an insurance company created to insure the welfare of widows and orphans. This appears to be the early beginnings of life insurance. During the period of 1697 to 1762 many other memos were found relating to the establishment of life insurance. Some of the early known companies are The Society For Equitable Insurances, The Perpetual Assurance Office and The Hampshire Society. It wasn’t however until about 1850 that the first evidence of life expectancy actuary tables were found.

The first evidence of insurance for businessmen was memos found going back to the year 1601. Many different kinds of businesses were mentioned in these memos such as small businessmen, mining companies and ship building companies. Evidence also shows that the British took out insurance on their enemies’ ships for the purpose of collecting on them after they were destroyed by the British Navy.

In the next article we’ll go over the various types of insurance that one can purchase today.

As the water began to drain from New Orleans in 2005, we learned that most of the homeowners in New Orleans did not have flood insurance, since they were supposedly in “low risk” areas. The over 60% of homeowners will need to depend upon their own savings, and limited federal assistance, to rebuild New Orleans – at an uncalculated cost for homeowners and taxpayers.

Could that level of disaster, especially that level of uninsured disaster, happen in California? Less than 15% of California homeowners currently carry earthquake insurance, due to its high cost, the “can’t happen to me or my house” factor, and mortgage providers not requiring coverage. The next big quake will result in billions of uninsured damage – but is earthquake insurance really worth the high cost?

How Did We Get Here?

The state of California requires that all homeowner’s insurance providers to at least offer earthquake insurance (albeit, at a high cost). Until 1994, it was widely available – but the high damage costs of the Northridge earthquake resulted in 97% of homeowner’s insurance providers pulling out of the state the California. In response, the California Earthquake Authority was formed by the California legislator to provide earthquake insurance.

What Is the California Earthquake Authority, and How Does It Work?

The California Earthquake Authority provides two-thirds of the earthquake policies in California, sold through their member providers, like Allstate and State Farm. A homeowner purchases the policy through their regular insurance agent, but the policy is actually a CEA policy.

The CEA currently has about $7.2 billion to pay claims, which it states is enough to pay foreseeable damages (Loma Prieta in 1989 had $6 billion in total damages). If the damage claims are more than $7.2 billion, then each claim would be paid a prorated portion of their losses – unlike a regular insurance company, which promises to pay the actual damages under the insurance policy. The state of California cannot help pay the claims out of general funds.

The policies also have a high deductible – usually 15% of the value of the dwelling. In other words, your home must be damaged more than 15% of its value before the insurance starts paying. So, this insurance is not for cracks in the driveway – it is for significant structural damage to your home. The policy also pays for limited contents (starting at $5K) and loss of use (starting at $1500).

Why Is Earthquake Insurance So Expensive?

Insurance policy premiums are calculated based on probabilities – the probability that a house like yours in a neighborhood like yours will catch fire, or a driver like you will have an accident. With data from millions of homes, these probabilities can be calculated with reasonable accuracy. But, no one can reliably predict the probability that there will be an earthquake strong enough to damage your home.

And, as you can imagine, damages from an earthquake, flood, or hurricane, are widespread, over potentially thousands of square miles – instead of one or a few dozen homes, as in a fire. As such, the insurer would have to pay either zero claims, or billions of dollars of claims – too much variance to reasonably plan for or price accurately.

Are We Really At Risk Here in San Jose?

According to the USGS, there is a 62% probability that there will be an earthquake of 6.7 or greater (like the Northridge quake) in the Bay Area in the next 30 years. In my zip code (San Jose 95126), USGS calculates a 80% chance of a 6.0 earthquake and a 20% chance of a 7.0, in the next 30 years. Whether you consider that to be a high risk depends on your risk tolerance for earthquakes – I consider that a high risk of a moderate earthquake and a somewhat low risk of a terrible earthquake, over the next 30 years.

But like any issue involving real estate – it is all local. Where your home is actually located significantly affects your risk – bedrock, reclaimed land from the bay, soil type, nearby streams, actual distance from the epicenter – all can affect potential damage.

But of course, many earthquakes occur where the USGS was not even aware of a fault line – and we never know when or where it will happen, until it happens.

Should I Obtain Earthquake Insurance?

Factors to Consider:

Could you afford to pay for the rebuilding your home from your own savings & investments? Can you afford to pay the high cost of insurance, indefinitely? Could make payments on your current mortgage and on a new loan to rebuild? Can you mitigate your potential losses by bolting your roof to the walls and the walls to the foundation, for example? What is your tolerance for the risk of an earthquake? What is the risks of your current home construction (type, age, foundation)? What are the risks of your specific location (soil type, distance to known faults)?
Are the Costs Worth It?

Let’s assume that you have a home that would cost $250K to rebuild, you will own the home for the next 30 years, and your earthquake premiums are $1200 per year. Over the next 30 years, that would be a total of $36,000 in premiums (assuming your premiums do not increase, to simplify calculations).

Instead of purchasing insurance, you invest the premiums in a diversified mutual fund. With an 8% annual return, you would have $135,000 (pre-tax) in year 30.* But of course, you only have that total in year 30, not in year one – meaning that if the earthquake happens tomorrow, you don’t have the money.

The deductible is another big turn off for many homeowners. The insurance pays only for large structural damage, not broken dishes or cracked driveways – meaning that it is less likely you will use it. However, be aware that you will not need to come up with the cash for the deductible – you may either opt to not undertake those repair or rebuilding costs, or you can apply for an SBA loan to pay for the deductible (assuming a federal disaster area is declared).

Why Not Just Get Federal Aid, or “Walk Away” and Let the Bank Have the Property?

The federal government would probably provide access to SBA loans, if the area is declared a federal disaster area (no small business required). However, the $200K maximum SBA loan may not be enough to rebuild your home – and, it is a loan that you need to pay back (in addition to your current mortgage).

If you have refinanced your mortgage, you have a recourse mortgage – which means that not only can the bank foreclose on the property in case of non-payment, the bank can also come after your personal assets and future income in case of non-payment. So you cannot just walk away, especially if you have a good income and some personal assets. The bank may help out by deferring payments for a few months, but you still must pay back the loan.

Last Thoughts

We have earthquake insurance on our home. Our home was not yet built in the 1906 earthquake (so who knows if it would stand), it is 75+ years old and is not bolted to the foundation, and we have a refinanced mortgage. For my family, the insurance premiums are worth peace of mind in case of a major earthquake disaster. That’s exactly what insurance is for – the “you never know.”

*calculations ignore inflation

The Beginnings

State Farm insurance began in 1922, the invention of a man named George J. Mecherle. Mecherle thought that he could come up with a better insurance company than the rest, offering better coverage and great rates. So he did. Something about Mecherle’s vision was right – more than eighty years later, State Farm Insurance is still going strong.

“In just over 80 years, State Farm Insurance Companies

Mobile Homes should be insured like any other type of home. Normally this means hazard insurance. But it also could be for flood or earthquake.

Hazard insurance covers damage from: Fire, wind, theft, vandalism, collision, freezing and pipe burst (leaks from pipes, washing machines, water heater, etc.)

Collision would be from a car or other automobile, or an aircraft. Hazard insurance includes the following categories:

A – Dwelling – this covers the actual structure. Typical cost per year for a normal mobile home will run from a couple hundred dollars to several hundred dollars.

B – Other Structures – this would be any other buildings like a shed.

C – Contents – this would be up to a certain amount for all of the belongings and appliances in the home. Make sure you video tape all of your contents and put the record of this in a safe deposit box.

D – Loss of Use – this would be for any expenses when you cannot use your home for any reason. An example is recently there were some fires in Santa Barbara California. Some residents did not have any damage to their homes, yet they were forced to evacuate. Well, their costs of evacuation would be covered. Not many people know this!

Flood insurance is either Preferred or Normal.

Preferred is when the home is not in a flood zone according to the FEMA flood maps. These maps are constantly changing and it is possible for a home to not be in a flood zone one year, and in a flood zone the next. Now, this is not typical but it can happen.

Normal flood insurance is when the home is in a FEMA flood zone.

Flood insurance is some of the most expensive, costing upwards of $1,000/year for a typical mobile home. To decrease this cost the home owner could get an elevation certification by a surveyor and if the home is high enough, the insurance cost would be dramatically reduced.

Flood insurance would cover dirt and debris from a flood, water damage from an actual flood or from a burst pipe, or any other type of water disaster.

Last, there is Earthquake coverage. This covers the structure from damage from an earthquake. Typically the most damage a mobile home will have from an earthquake is from coming off the foundation piers. This usually is not that damaging and can be righted quite easily by a mobile home contractor with the right tools. But, the plumbing (including gas) and electrical connections would need to be repaired. Check out our other elerts for more about putting a new unit on your space.

Haiti was greatly devastated from the earthquake the hit the country last January 12, 2010. With a magnitude of 7.0, many lives were lost, buildings and structures have collapsed. Millions of dollars of property were destroyed in just an instant. This event just showed us how destructive the force of nature can be and this tragedy can happen at any country in the world. Survivors of earthquake face great financial setbacks as they try to rebuild there homes.

Fear is the greatest motivation. After what have happened in Haiti many homeowners now are looking for free insurance quotes, California being prone to earthquake, made many of its residents re-think and re-evaluate their policies.

Earthquake can strike at any place at anytime, like what the earthquake in Haiti showed. Unstable buildings and poorly constructed structures could collapse easily. Insurers offer various types of insurance packages pertaining to damage coverage, these packages are named HO-1 up to HO-8, most owners settled for an HO-3 package which covers damage to structure, contents, property, possession and liability coverage. However, this type of policy does not include coverage for natural disaster. Earthquake and other natural disaster coverage policy are to be bought separately.

In the event that you are unable to live in your shelter because of the extreme damages of your house has received from a natural disaster. Your insurer will shoulder all living expenses and your family maybe temporarily be covered until a permanent housing can be assumed. Natural disasters and calamities may render you homeless.
Losing one’s property is a horrifying and traumatic experience, even if your home insured, it is still better to have your house still standing after an earthquake than going to claim your coverage with your house destroyed. Reinforcing you’re the foundation of your house could not only increase the safety of your house but some insurers also offer discounts on reinforced houses. Some building and houses collapsed days after an earthquake, this is because the damage inflicted in these establishments has weakened the foundation of their structure. Carefully check the condition of your house, it best to check the foundation of your home to determine which area might collapse during an earthquake.

However this will not guarantee that it will not collapse, since Earthquake damages depend on the intensity of the quake. If your house is insured, make preparations that will let claiming process easier and faster in case you may need to file a claim. Document and make an inventory of your properties, this can be done by simply taking pictures or video taping your properties. This will be proof of what you own before the time you may need to claim your insurance.

Natural disasters like earthquake can be very destructive, as it has shown in the aftermath of the recent Haiti earthquake incident. If you just bought a property and moved into California, you should immediately look for free insurance quotes, California is prone to earthquake and having insurance could really help you in the event you are victimized by an earthshaking calamity.

Earthquake home insurance, obviously, isn’t something that everyone needs. For those who do need it, however, it sometimes means the difference between a devastating, but manageable, crisis and a total financial loss. If your house or apartment is ruined in an earthquake, you can count on a lot of difficulties. Like fires, earthquakes can raze a structure to the ground. Unlike fires, there is little you can do to prepare for earthquakes. No matter how hard of a shake our best buildings can take, nature can always provide a shaking that’s just a little more severe.

Earthquake home insurance will even be required by mortgage underwriters in some areas. California mortgage lenders, obviously, may require that homeowners purchase such insurance. In some areas, an earthquake is among the likeliest disasters. While you’re always at risk of losing your home in such an event, you can ensure that you don’t lose your shirt, as well. A good insurance policy can cover a great many expenses, from reconstruction to the purchase of a new home to your expenses while you’re displaced. It can also cover the items within your home, which may almost equal the home itself in value.

Earthquake insurance is only the beginning of what a homeowner needs to have to mitigate their risk, however. Consider what happens after an earthquake. Oftentimes, the aftermath is more devastating than the earthquake itself. There are often fires, buildings that collapse long after the event, destroyed roads, ruined water and sewer systems and a host of other issues. In short, any significant earthquake is guaranteed to be a huge mess, both for the people who live in the affected area and for those who arrive to help clean that area up. This means that you’ll need other types of insurance if you’re to be truly covered.

Earthquake insurance will only cover the damage from the seismic event, according to the specifics of the policy. Expect those specifics to be agonizingly precise, as well. Insurance companies, however, are very experienced with these events and can tell you what additional types of coverage you’ll need to be protected in such an event. This may include fire damage insurance, damage from exposure to the elements and other possible threats. Insurance companies have to be very specific in their coverages, but they offer enough different types that you can get everything you need quite easily.