Is earthquake insurance worth the cost?

This post comes from Len Penzo at partner blog Len Penzo dot Com.

Early last month, my then-12-year-old daughter, Nina, had her nerves frayed by three magnitude 4.5 earthquakes that struck Southern California over a two-day period.

Although the three temblors were extremely modest by Southern California standards, the epicenters were roughly five miles from our home -- which meant we were among those who experienced the brunt of the shaking. One of the shakers, which happened shortly after I had turned in for the evening, was so sharp that, for a brief moment, I thought it was going to toss me off the bed.

Thankfully, the quakes left no damage to our two-story home. Nevertheless, Nina was constantly on edge, afraid that it couldn't withstand the shaking. As such, I tried my best to assure her that, unlike brick buildings, wood-frame homes like ours, which make up the vast majority of residences in Southern California, are extremely flexible and therefore able to withstand most earthquakes with relatively little damage.

That's not to say that during a major temblor lots of pictures can't fall off the walls, cupboards won't be emptied of their contents and windows won't crack or break. But the odds of our wood-frame house being turned into a heap of splintered lumber and shattered glass are long.

Earthquakes can happen almost anywhere

Of course, earthquakes in America aren't limited to the western U.S. There have been some significant temblors east of the Rockies, too.

Last year, a magnitude 5.6 earthquake hit central Oklahoma. More notably, in 1811 and 1812, four major earthquakes of magnitude 7.0 or greater struck the region surrounding New Madrid, Mo. The shocks were so powerful they were felt as far away as Ohio and Virginia.

The East Coast isn't immune from the occasional seismic shrug either.

In 1886, a magnitude 7.3 quake struck Charleston, S.C., and Cape Ann, Mass., experienced a strong temblor measuring 6.0 in 1755. More recently, a magnitude 5.8 shaker struck Mineral, Va., in 2011. Other significant modern-day earthquakes in the eastern U.S. measuring over 5.0 struck Plattsburgh, N.Y., in 2002 and northwestern Pennsylvania in 1998.

In fact, according to the U.S. Geological Survey, 23 states had at least one earthquake in 2011 big enough to be felt.

The pros and cons

The reason I bring this up is because my homeowners insurance policy needs to be renewed this month. The basic premium is slightly more than $600. As part of the process, the insurance company is also offering me the opportunity to buy earthquake insurance for an additional premium of $526.

So, is earthquake insurance worth it? That's hard to say, because there are so many variables to consider, and earthquake insurance policies and rules vary on a state-by-state basis.

In my case, the earthquake insurance policy being offered by the California Earthquake Authority would cover $304,638 to rebuild my home. Unfortunately, there is a 15% deductible on the structure's replacement cost, which means $45,695 in damages would come out of my pocket before I saw a penny from the insurance company.

Here's the rub: Short of my home being completely destroyed, it's fairly unlikely I'd encounter damages far more than the policy's large deductible. That hunch is backed up in a CBS MoneyWatch article by Kathy Kristof, who wrote:

Total loss claims from fires are common, but they're rare with earthquakes. California's two biggest quakes -- the 1989 Loma Prieta quake and the 1994 Northridge quake -- give some clues. Roughly 45,000 claims were submitted after the Loma Pieta quake, and the average value (not adjusted for inflation) was between $9,000 and $18,000. (If you figure a 3% inflation rate, the $18,000 claim would be worth just over $36,000 today.) The Northridge quake generated 195,000 claims with an average value of $35,000 -- about $60,500 in inflation-adjusted dollars, assuming a 3% average inflation rate.

It also doesn't help that the earthquake insurance would cover only $5,000 worth of damage to the contents of my home. That's almost ludicrous.

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If my home were older, or built of brick or masonry construction, I would probably buy the coverage, but it's not. I have a relatively new wood-frame home -- built just 15 years ago -- that is bolted to the foundation and constructed to the latest earthquake-resistant​ standards.

That's why, after carefully weighing all the risks, I've decided to take my chances and decline the earthquake insurance. For me, the potential benefits simply don't justify the cost of the coverage.

More from Len Penzo dot Com and MSN Money:

• 12 reasons you should (and shouldn't) pay off your mortgage early
• 21 reasons why corner lots are for suckers
• 15- vs. 30-year mortgages: Why 30 is better
• What if you got hit by a bus?
• Why you need a $100,000 deductible
• Is your home underinsured? 8 keys