Should I buy earthquake insurance? The cost/benefit analysis.

“Take calculated risks. That is quite different from being rash.” – General George S. Patton

Newport Beach had an earthquake two weeks ago. It was minor at a magnitude 3.1, but we still felt the jolt for two seconds. Being from the Midwest, tornadoes were always my big fear when it came time for natural disasters. Show me gray-green skies during a summer thunderstorm in northern Ohio and I was bolting for the basement.

But for some reason, earthquakes have never really bothered me living in California for the past decade. I’ve experienced plenty of tremors and what felt like a really big one while staying in the desert south of Joshua Tree. I believe that eventually the “big one” will happen.

That being said, I still don’t have earthquake insurance. I’ve followed the school of thought from these columnists at the San Francisco Chronicle:

“We’ve always opted not to purchase earthquake coverage. For us, it boiled down to a purely business decision. The cost of coverage was so high, the deductibles so high and the exemptions so many that we simply decided to assume the risk of loss rather than pay the premium. We took the position that the unlikelihood of a catastrophic event outweighed the cost of coverage. Ultimately, a decision will rest on your view of the risk and your comfort level in assuming that risk.”

“The first thing to find out is if you are in a known earthquake fault area. When you purchased your home, you should have received a Natural Hazard Disclosure Statement. Sellers of real property are required by law to disclose before closing whether the property is in an area subject to natural hazards, including an earthquake fault zone.”

You can find out if you’re in a known fault area by checking out the California Geological Survey website.

When I lived in Pasadena, my home was close to a major fault line. I bought Earthquake insurance. I don’t recall the exact amount, but remember it being expensive. And they all have huge deductibles - typically around 10% to 15% of the insured value. I think my deductible in Pasadena was in the $30,000 range.

Newport Beach has a fault line too but our house is further away from it. We’ve opted out of earthquake insurance. It boils down to risk tolerance.

Plus the cost/benefit analysis, as noted by Liz Pulliam Weston, is trickier than usual:

“More than 80% of California homeowners don’t have earthquake insurance. That figure often stuns people from out of state, because of the widely held notion that the Golden State is a bowlful of geological jelly. Californians, however, know that serious earthquakes are pretty rare. Most are mild, and almost all are very localized.”

Although she ends that paragraph by saying this still isn’t the best excuse. In another article she admits that she still writes the “peace of mind” check each year for earthquake insurance.
But that little tremor a few weeks ago got me thinking. And now I’m wondering – should we get it? What would you do?

Further reading:
What are the pros and cons of earthquake insurance?

Earthquake insurance is expensive, risky business.