Sinkhole Insurance

Many businesses offer sinkhole insurance, also known as Sinkhole Loss Coverage. Sinkholes may also be covered by Catastrophic Ground Collapse, a type of insurance that covers certain types of earth movements. Sinkholes are one of the more difficult events for homeowners to find insurance coverage for, despite the fact that they can be catastrophic to real estate and personal property.

Sinkholes are frequently excluded from standard home insurance policies because they are difficult to predict and costly to insure. Complicating matters, once land has collapsed due to a sinkhole, insurers can stop underwriting coverage for that area.

Are sinkholes covered by insurance?

Insurance companies in high-risk areas may be required to offer optional sinkhole insurance as an endorsement or as a standalone policy.

Sinkhole endorsements are available from many major insurance companies, including Nationwide, Travelers, and USAA, in high-risk areas. Coverage may, however, be limited to events caused by previous mining operations. Natural sinkholes, for example, are not covered by Nationwide or Travelers.

Local businesses may also provide sinkhole insurance to communities at risk. Local homeowners, for example, can obtain sinkhole insurance from the smaller Citizens Property Insurance Corporation in Florida. This insurer does provide policies that cover damages and losses caused by natural sinkholes.

A geological survey of your property will most likely be ordered before you can get sinkhole insurance. This is done by the insurance company to ensure that there is no obvious risk of a sinkhole collapse. The customer is usually responsible for the $200 survey cost.

There are parallels between earthquake and sinkhole insurance. Sinkholes, like earthquakes, are impossible to predict, but they are more likely in some areas than others. Insurance companies set premiums based on the likelihood of occurrence.

Sinkhole insurance, like earthquake insurance, is frequently prohibitively expensive. Sinkhole insurance may cost around $2,100 per year in some Florida counties with a history of sinkholes, which is more than the average homeowners insurance policy in the state.

Sinkhole insurance and catastrophic ground collapse

Only Florida and Tennessee require homeowners insurance policies to include catastrophic ground collapse coverage, which covers a slightly different type of loss than sinkhole insurance. A catastrophic ground collapse loss must satisfy the following criteria:

• The ground must suddenly collapse.
• You must be able to see the depression in the ground clearly.
• Structure damage to your property or its foundation is required.
• The government must condemn your property and evict you.

A sinkhole may not meet one or more of these criteria but still be financially disastrous. A sinkhole may damage your foundation, but catastrophic ground collapse coverage will not kick in unless your home is condemned.

Is sinkhole insurance worth it?

Because sinkhole insurance can be very expensive, you'll have to weigh the risk of your property against the cost of coverage.

Policies in high-risk areas can be costly. In some Florida counties, the annual premium for sinkhole loss coverage can exceed the state's average cost of homeowners insurance. To determine the likelihood of a future sinkhole, consult a professional study or the history of the area near your home.

Homeowners who build in areas where sinkholes are unlikely to occur may choose to forego coverage. Though it's difficult to predict when and where sinkholes will occur, the Insurance Information Institute quotes researchers who believe that sinkholes affect only about one in every 100 properties each year.