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Earthquake insurance: Sturdier home coverage

by Janna Herron
Washington Monument is encased in scaffolding during Earthquake repairs

An earthquake can shake up your life and devastate your home, but don't let it jolt your finances out of place. You need the right coverage, because your home insurance policy won't be enough.

About 81 percent of the world's biggest earthquakes occur along the Pacific earthquake belt nicknamed the "Ring of Fire," part of which runs up the West Coast from Southern California to Alaska, according to the U.S. Geological Survey. But quakes do happen in other parts of the U.S., such as the earthquake centered in Virginia that damaged the Washington Monument in 2011, and another that same year in Oklahoma, which was the state's largest earthquake in modern times.

The Washington Monument is encased in scaffolding during repairs of damage caused by a 2011 earthquake.

Most U.S. households don't carry insurance to cover earthquake damage. Industry groups say half the losses from the Virginia quake were uninsured, while less than 1 percent of Oklahomans had the proper insurance for a quake. Even in California, which has the highest earthquake risk in the country, only 12 percent of homes carry earthquake insurance, according to the Insurance Information Institute.

"That's its own disaster waiting to happen," says Glenn Pomeroy, CEO of the California Earthquake Authority, a nonprofit, privately funded insurer set up by the state government.

Here are five things to know about earthquake insurance.

Compare insurance rates in your area.

Get covered!

Conventional homeowners policies don't cover direct damage from earth movement, which includes earthquakes, landslides and sinkholes, says Chris Hackett, director of personal lines policy at the Property Casualty Insurers Association of America. Homeowners wanting earthquake coverage must see if their current insurer offers a rider on their homeowners policy or search for a separate policy altogether.

Earthquake coverage is offered by major insurers including State Farm, Travelers and Liberty Mutual. The Insurance Information Institute reports that the largest writer of earthquake insurance is the California Earthquake Authority, or CEA, created after insurers fled the state following the 1994 earthquake in Northridge that caused more than $15 billion in losses.

Northridge earthquake damage

Earthquake insurance premiums could exceed the cost of your homeowners policy in high-risk regions, the CEA's Pomeroy says. Annual coverage rates in California average about $1.75 per $1,000 of coverage, while premiums in lower-risk states can cost as little as 50 cents per $1,000.

Don't settle for a high premium

If the price for earthquake insurance is daunting, there are ways to reduce costs. For example, the CEA offers a 5 percent discount to California residents who retrofit their existing homes to make them less prone to shake damage, Pomeroy says. Such improvements include bolting or bracing the structure to the foundation. Homes built after 1979, when stricter building codes were enacted across the state, generally draw lower premiums.

Insurers may offer lower premiums on wood-frame homes versus ones made of brick or masonry, says Hackett. Frame homes typically can withstand shaking better, whereas brick or masonry homes aren't able to flex with the movement and can crack.

Other insurers may lower your premium if you put sprinklers in your home, install metal straps to the walls and roof, or use different trusses, says Jim Whittle, chief claims counsel at the American Insurance Association.

Consider additional coverage

Read an earthquake policy carefully to be sure your belongings are covered, because some quake insurance doesn't cover personal items. If you want to protect your contents, you may need to purchase a more comprehensive earthquake policy, which will likely cost more.

You may want to consider buying extra earthquake coverage for expensive items, such as fine art or jewelry, on top of the coverage you purchase for your home's more ordinary contents. Similar to regular homeowners policies, earthquake insurance will cover items up to a limit.

"For example, your limit for contents coverage may be $100,000, but on fine art you may have a limit of only $5,000," says Whittle. "That may not be enough for the art you have."

Another type of coverage you might buy as part of an earthquake policy would provide "additional living expenses," money to cover the costs of temporary housing and other basic needs after a disaster.

See if your other policies cover quakes

Apartment dwellers will find their renters insurance is insufficient to cover damage from earthquakes, same as homeowners insurance. Renters who want to insure their belongings against quake damage will need to scout around for a separate earthquake policy.

Meanwhile, comprehensive auto insurance typically covers vehicle damage incurred in an earthquake, says Whittle. However, not all car owners have comprehensive insurance; many carry only liability insurance, as their states require. That won't do diddly if your car is damaged or destroyed by a quake.

As for other property, check your existing coverage closely. If you have a boat, for example, your marine policy may cover earthquake damage.

Be ready to file a claim

There are a few steps you can take to make filing a claim easier and faster after an earthquake, or any catastrophe.

First -- and this may sound silly -- know who your insurer is. Hackett says many times after a disaster, homeowners can't name their insurance company.

Keep your insurance agent's card in your wallet, or store information about your earthquake insurance and other policies in your cellphone, Whittle suggests. That way, you'll be sure to have it when you need it.

"We don't want to see people getting killed after an earthquake because they go back in a damaged home to get paperwork," says Whittle.

Second, take inventory of everything in your house. Make copies of receipts from appliance purchases and other big items. Take pictures or video of your belongings. Store this list in a safe deposit box or firebox in your home. Trying to remember everything that you had is much harder after a catastrophe. Being prepared ahead of time will speed your recovery.







6 credit report items that scare lenders

by Dana Dratch

You pay your bills on time and never miss a payment. If you're still having trouble with credit, something on your credit report could be scaring lenders.

Everyone knows the big gremlins that haunt credit reports: items such as bankruptcies, foreclosures and even late or missed payments. Less dramatic items can also spark some anxiety in skittish lenders.

When you apply for a loan or a card account, lenders review your credit score and pull your credit report. Or they may take that report and pump it through one of their own scoring systems.

If they don't like what they see, you could be rejected. Or you may get approved with less-favorable terms. And it isn't just new applicants who have to run the gauntlet. Credit card issuers periodically review their current customers' files, too.

Even more confusing is that different lenders zero in on different credit report items. So it's entirely possible that, even for the same loan, no two lenders will see your credit history in exactly the same light.

Think there could be something heinous lurking on your credit report? Here are six items that could scare lenders.

Multiplying lines of credit

Opening one new card is normal. Opening three in a short amount of time could signal something bad is going on in your financial life.

When it comes to credit card issuers, "the account monitoring window has shrunk," says Norm Magnuson, vice president of public affairs for the Consumer Data Industry Association, the trade association for credit reporting companies. "It used to be months and months. Now you find companies doing account monitoring monthly or every other month."

And the one thing those issuers don't want to see is that you're asking everyone in town to lend you money.

"That would raise some questions," he says. "It could be an indicator of something that's going on. I don't think it's in the best interest of any consumer to go out there and be a collector of credit lines."

A housing short sale

"People are told short sales won't hurt their credit," says Maxine Sweet, vice president of public education for credit bureau Experian. "But there is no such thing as a 'short sale' in terms of how the sale is reported to us.

"The way the account is closed out is that it is settled for a lesser amount than you agreed to pay originally," she says. "The status is 'settled.' And it's just as negative as a foreclosure."

One tip: Negotiate so the lender doesn't report the difference between your mortgage and what you repaid as "balance owed" on your credit report, says John Ulzheimer, formerly of FICO, now president of consumer education for CreditSesame. Your credit score will take a heavyweight hit, but this action will slightly soften the blow, he says.

Sweet's advice is not to discount the notion of a short sale, just go into it with your eyes open.

"It may be the right decision to get out of the house," she says. It may be "better than a foreclosure in terms of the economy, moving the house and moving on with your life. Just don't expect to walk away with no impact to your credit history."

Someone else's debt

Here's something you might not know: When you co-sign on the dotted line to help someone else get a loan or a card, that entire debt goes on your credit report.

While the fact you've co-signed is neither good nor bad, it does mean that -- as far as any potential lenders are concerned -- you're carrying that debt yourself. And it will be included in your existing debt load when you apply for a home mortgage, credit card or any other form of credit, says Ulzheimer.

And if the person you co-signed for stops paying, pays late or misses payments, that bad behavior will likely go on your credit report.

So when someone tells you that co-signing is painless because you'll never have to part with a dime, you can tell them that's not true. Co-signing means agreeing not only to repay the obligation if necessary, but also to allow the debt -- and any nonpayment -- to count against you the next time you apply for credit yourself.

Co-signing for a friend or family member "plays well at the Thanksgiving table, but it doesn't play well in the underwriting office," says Ulzheimer.

Minimum payments

While creditors make money when you carry a balance, lenders who view your credit report don't like to see you paying just the minimums.

"It suggests you're under financial stress," says Nessa Feddis, vice president and senior counsel for the American Bankers Association. "You may be defaulting," she says.

Paying minimums once in a while doesn't necessarily signal a problem, she says. For instance, paying minimums in January, after holiday spending. Or paying minimums one month as you wait for your annual bonus to arrive.

But consistently paying minimums month after month signals that you can't pay off the full balance, and your current and future lenders will see that as a giant red "stop" sign when it comes to granting additional credit.

A lot of inquiries

Every time you allow a potential lender to pull your credit report, you risk generating a hard inquiry on your credit report. The exact impact of this inquiry varies by the consumer, the score and the number of inquiries. Multiple inquiries may not make or break everyone's credit scores, since they generally account for a small percentage in most credit scoring models.

However, "for someone who is a FICO 670, yes, they're a problem, because they're already in the marginal zone," Ulzheimer says. For these consumers, even a small downtick can negatively impact their creditworthiness.

If you're applying for a home, auto or student loan, you can minimize the damage to your FICO score by making all of your applications within a 45-day period. When you do that, the score bundles all the similar inquiries and treats them as one. Unfortunately, there is no similar grace period for credit card applications.

Cash advances

"Cash advances, in many cases, indicate desperation," says Ulzheimer. "Either you've lost your job or are underemployed. Nobody takes out cash advances against a credit card because they want money sitting in a bank somewhere."

Because the interest rate is generally higher than for the credit card charges, "you're generally borrowing from Peter to pay Paul," he says.

How it hurts: First, the cash advance is immediately added to your debt balance, which lowers your available credit and can lower your credit score, says Ulzheimer. And all potential lenders will see your score.

Second, larger card issuers regularly re-evaluate their customer's behavior. To do that they often pull the credit report, the FICO score and the customer's account history and put those three ingredients through their own scoring systems, says Ulzheimer. Many of the scoring models penalize for cash advances, which are often seen as risky, he says. Since your account history is available only to that issuer, only your behavior score with that card is likely to be affected, he says.

However, if the issuer slices your credit line or cancels your account, that could impact your credit score. And that could affect your relationship with other lenders.

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