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Many companies do provide sinkhole insurance, commonly known as Sinkhole Loss Coverage. In some instances, sinkholes may also be covered by Catastrophic Ground Collapse, a variant of insurance for certain types of earth movements. Although sinkholes can be catastrophic to real estate and personal property, they are one of the more difficult events for homeowners to find insurance coverage for.
Sinkholes tend to get excluded by standard home insurance policies, as they're difficult to predict and expensive to insure. Compounding this difficulty is that once land has collapsed due to a sinkhole, insurers can discontinue underwriting coverage for that area.
Are sinkholes covered by insurance?
In high-risk areas, insurance companies may be required to offer optional sinkhole insurance as an endorsement or a standalone policy.
Many major insurance companies, such as Nationwide, Travelers and USAA, offer sinkhole endorsements in high-risk areas. However, coverage may be limited only to events caused by previous mining operations. Nationwide and Travelers, for example, exclude naturally occurring sinkholes from coverage.
Local companies may also offer sinkhole insurance to at-risk communities. For example, local homeowners can get sinkhole insurance from the smaller Citizens Property Insurance Corporation in Florida. This insurer does issue policies that cover damages and losses due to sinkholes caused by natural phenomena.
Before you can get sinkhole insurance, the company will likely order a geological survey of your property. The insurance provider does this to make sure there is no obvious risk of a sinkhole collapse. The customer is usually responsible for the cost of the $200 survey.
There are similarities between earthquake insurance and sinkhole insurance. Like earthquakes, sinkholes are impossible to predict, but they are more probable in some areas than others. Insurance companies price premiums based on the probability of one occurring.
Sinkhole insurance, like coverage for earthquakes, is often expensive. In some Florida counties with a history of sinkholes, sinkhole insurance may cost around $2,100 per year — more than the average homeowners insurance policy in the state.
Sinkhole insurance and catastrophic ground collapse
Florida and Tennessee are the only two states that require homeowners insurance policies to cover catastrophic ground collapse, which covers a slightly different type of loss than sinkhole insurance. A loss that's covered by catastrophic ground collapse must meet the following criteria:
- The ground must abruptly collapse
- You must be clearly able to see the depression in the ground
- Your property or its foundation must undergo structural damage
- The government must condemn your property and require you to vacate
A sinkhole could fail to meet one or more of these criteria and still be financially devastating. A sinkhole may affect your foundation, but unless your home is condemned, catastrophic ground collapse coverage will not activate.
Is sinkhole insurance worth it?
As sinkhole insurance can be very expensive, you'll have to balance your property's risk with the cost of coverage.
Policies can be expensive in high-risk areas. In some Florida counties the annual premium for sinkhole loss coverage can exceed the average cost of homeowners insurance policy in the state. Consult a professional study or the history of the area nearby your home to judge how probable a future sinkhole is.
For properties constructed in areas where sinkholes are unlikely to occur, homeowners might choose to forgo coverage. Though it's hard to know exactly when and where sinkholes will happen, the Insurance Information Institute quotes researchers who believe that there's only about a 1 in 100 chance of sinkholes affecting a given property each year.