Earthquake Insurance

Earthquakeinsurance is a form of homeowners' insurance which deals with damage caused byearthquakes.In regions where earthquakes are especially

common,homeownersmay be required to carry earthquake insurance,so that in the event of an earthquake,peoplerely less on government disaster funds and more on their

own insurancepolicies.As a general rule,earthquake insurance is not a part of standardinsurance policies,and it must be purchased separately.

2.Earthquakes cancause a variety of damage to a home,ranging from complete destruction to damagewhich causes the building to become structurally unsound.Indirect

damage caused byneigh-boring collapses of structures and freeways can also occur,as can morebizarre forms of earthquake damage,like winding up with a car in the living

room or a sinkholein the back yard.Fires and flooding are also common problems in the wake ofearthquakes.

3.When homeownerspurchase earthquake insurance,they may be protected against both directdamage,such as a structural collapse after an earthquake,and indirect

damage,like a firecaused by broken gas lines.More commonly,the insurance only covers structuraldamage caused directly by the earthquake.The insurance may pay for a

complete replacementof the structure,or a remodel, depending on the type of insurance and thenature of the damage.Some policies also cover damaged property like cars,and

they may provideliving allowances so that the residents of the home can temporarily relocatefor the duration of the repairs.

4.This type ofhomeowners' insurance is prone to adverse selection,in which only people inhigh risk areas purchase the insurance.The problem with adverse selection for

insurance companiesis that it decreases the pool of customers,making potential payouts veryexpensive.For this reason, earthquake insurance often has a high deductible,and

it can he veryexpensive.

5.Recognizing theneed for earthquake insurance,some governments have provided subsidies forearthquake insurance,to reduce the stress on insurance companies.Insurance

companies alsoadjust their risk pools carefully,and there may be stringent requirements for ahomeowner to purchase earthquake insurance.For example,a home may need to

be retrofitted forearthquake safety, reducing the amount of damage which will be incurred in aquake.For low-income home owners, this can be very difficult,as it drives the

cost of earthquakeinsurance out of reach,which can in turn make it difficult to get home loans,asmany banks in earthquake-prone areas insist on earth-quake insurance as a

condition for aloan.Earthquakes cancause a variety of direct damage and______.

A.indirect damage

B.risk pools

C.governmentdisaster funds

D.the nature of thedamage

E.insurance policies