Hello Lowell and Canie,

I see you two are going to make me work overtime. So, just to keep things in order, let me answer your questions with a little cut and paste:

"Why should I pay inflated rates of earthquake insurance when:
1) If an earthquake happens, there is no way the insurance company will be
able to meet all it's claims, and either they will go bankrupt, and I will be
left out in the cold, or they will find some reason not to pay my claim."

I cannot answer for states other than California, but in this state we have an insurance guarantee pool and even if an insurance company goes bankrupt, the pool will pay any claims and refund any premiums necessary.

"2) The government will bail me out with low-cost loans and emergency
appropriations which in the long run will cost me a lot less than earthquake
insurance, who knows I might even make a cent or two on it. Everybody
knows that this is what happens every time there is a flood on the Mississippi
or a hurricane in Florida."

In regard to earthquake situations versus flood insurance, there are two sets of rules regarding both of these.

In the aftermath of Loma Prieta, the maximum the government would allow for a homeowner was $100,000 at 8%. In order to be paid you had to qualify for the loan, thus if you already have a mortgage and cannot qualify for the low cost loan, you didn't get it. As homes in this state are very expensive as are construction costs, you could have $200,000 in damage and without quake insurance, not be given a loan because it won't meet the need you have and in the end all you can do is go bankrupt.

Flood insurance is a whole different banana. It is only sold by the government and their regulations regarding payments are totally different from earthquake disasters. While I suppose some could say they made money on disaster relief, it would have to be few in number. One thing most people forget is that when you are in a disaster you are often forced out of your home for some period of time. Is that expense paid? Most often, it isn't or could not possibly be enough when you consider the emotional hardship of losing the place where you found your daily rest.

The other element that no one has addressed is that there is a long wait to get paid by FEMA on earthquake claims. Most said 90 days was the earliest. If your home is red tagged and you can't enter it and have to live somewhere else and you need financial assistance, how do you make your mortgage payments and rent another home or apartment and make ends meet? In three months you can be financially drained and go bankrupt before assistance may be delivered.

"3) Inflation has held at about 2% per year for the past 15 years. So, if the last
adjustment Mary Jane had on her earthquake insurance was 15 years ago,
a 30% increase would be reasonable. If that adjustment was made 3 years
ago, if I were Mary Jane, I'd be asking questions too"

Mary Jane should ask her insurance company why they feel a 30% increase is necessary at this time and find out why. If she thinks it is inappropriate, she can write to her Department of Insurance and ask them for assistance in clarifying this issue. All rate increases have to be approved by each states Department of Insurance before rates can be adjusted, so they had to prove that the cost was necessary or the increase would not have been granted. The explanation must have been substantial because generally, a rate hike of this size is not normally easily given.

"I tend to agree with Lowell - the money required to pay for an insane earthquake policy here in Long Beach, CA is nothing less than thievery. Best to get those low cost loans after.
10-15% deductible - so I'd be looking at least $30,000 worth of damage before the insurance company pays a dime - hardly anything on contents are covered - no other structures like fences, walls concrete driveways, etc are covered. This wonderful policy only costs a mere $2,100 a year for a 10% deductible."

What would you like to borrow from FEMA, $30,000 or see if you can qualify for a $100,000 loan? What would you do if the damage exceeded $100,000? I agree completely with your lack of satisfaction in the CEA policy. It doesn't cover nearly enough.
"If you look at the fine print of the California Earthquake Authority's policy you will see where they have the right to charge you more money in the event of a quake and they can't come up with the funds required to cover damages!"

You're right about this part as well. So far no one knows how this is going to work after a large earthquake in a major metropolitan area. Is the fund as sound as it should be, or could be? Until that quake scenario comes about, no one will know if the plan will hold up.
"Oh - and if we happen to then get hit by a tsunami all bets are off - no coverage!
I am required by the Mortgage company to have flood insurance of all things... though I doubt that covers Tsunamis!"

I don't think it covers tsunami's either. You must be in a flood zone that has had flooding in less than 100 year cycles. It's very costly and when you think of purchasing a home, one should learn about the necessity of flood insurance before purchasing the home. Most often the seller already has had it and when the appraisal is done, normally flood zone mapping is done at the same time. I live in a X or C zone, which means I am subject to possible flood damage in a 100 year flood cycle. I live across the street from a small creek. But during heavy downpours or rain for many days in a row it gets near the top. The good part is that from my home all of the remainder of the street is at a gentle downhill slope, thus people at the end of the same block are in a B zone and need flood coverage, whereas I don't.

I hope I provided some good answers to your questions. The sad part is that someday an earthquake may well strike our own homes and how the home fares out and whether we seek disaster assistance or use whatever kind of earthquake insurance we have, may in the end determine our long term financial outlook. Often the financial disaster that follows earthquakes is more severe than the damage itself. There are more tragic stories I could tell you about what happened to homeowners and business owners following Loma Prieta and how they lost their homes and their businesses and never recovered. There is little said about these losses, but they do happen far more often than most acknowledge.

Petra