Sinkholes can be pretty catastrophic to real estate and personal property, and are one of the more difficult events for homeowners to find insurance coverage for. It tends to get excluded in standard home insurance policies, because it’s difficult for insurers to predict its occurrence, and expensive to insure. Compounding the difficulty is that once land has collapsed due to a sinkhole, insurers can discontinue underwriting coverage there.
Unfortunately, at least 20% of the geological landmass of the U.S. is susceptible to sinkholes. It’s more common in Florida, Texas, Alabama, Missouri, Kentucky, Tennessee and Pennsylvania, where soluble rock below ground erodes and becomes unstable. So what can homeowners living in sinkhole territory do to protect themselves?
Many companies will provide some kind of insurance protection against sinkholes, commonly known as Sinkhole Loss Coverage. In some instances, sinkholes can also be covered by Catastrophic Ground Collapse. In this guide, we’ll walk you through each coverage type, explain how they protect you against sinkholes, and discuss whether homeowners should get them and the cost.
Sinkhole Loss Coverage
Many of the major insurance companies, such as Nationwide, Travelers and USAA, offer sinkhole endorsements but coverage is limited to events caused by previous mining operations. Nationwide and Travelers, for example, exclude naturally occurring sinkholes from coverage. You may find more local companies in the states more prone to natural sinkholes. For example, you can also get sinkhole coverage from smaller state-specific companies, such as Citizens Property Insurance Corporation in Florida. They offer policies that cover damages and losses due to sinkholes caused by natural phenomena.
To get the coverage, an insurance company will likely order a geological survey of the property. They do 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 loss coverage, though earthquake insurance does not cover sinkhole damage or loss. Like earthquakes, sinkholes are impossible to predict, but they are more probable in some areas than others. Insurance companies price premiums based on that probability of one occurring. If you live in some areas of Pennsylvania or Florida, the state where most sinkhole activity occurs, then coverage will be expensive. In some Florida counties with a history of sinkholes, an annual premium for sinkhole loss coverage can be more than $2,100. That’s more than the average homeowners insurance policy in the state ($1,991).
Catastrophic Ground Collapse
Florida and Tennessee are the only two states that require homeowners insurance policies to cover “catastrophic ground collapse.” This is not the same as sinkhole loss coverage. In fact, most sinkholes are excluded from this coverage because they must meet all four of these criteria:
- An abrupt collapse of the ground cover must occur
- The depression in the ground must be clearly visible to the naked eye
- Structural damage must be done to the building covered, including the foundation
- The Insured structure must be condemned and ordered to be vacated by the government agency authorized to issue such an order for that structure.
Your home almost has to fall into a sinkhole for this coverage to help you. A sinkhole could easily fail to meet one of those criteria and still be financially devastating. For example, say a sinkhole occurs beneath your home and cracks the foundation. Unless your home is condemned, catastrophic ground collapse coverage will not activate. You would have to pay the cost to repair the crack out-of-pocket, which we've seen as high at $8,500 depending on the severity.
Is Sinkhole Coverage Worth It?
This comes down to balancing the probability of a sinkhole occuring and the price of coverage. Policies can be extraordinarily expensive in some high-risk areas. Remember, In some Florida counties the annual premium for sinkhole loss coverage can be more than $2,100 - more than the average homeowners insurance policy in the state ($1,991). Unless a professional study or history of an area indicates a sinkhole is very probable in the future, you might determine the cost of coverage is not worth it.
For those living in an area where sinkholes are exceptionally unlikely, they might choose to forgo coverage as well. The actuarial risk of a sinkhole destroying most property or injuring someone is low. Research says there is about a 1 in 100 chance of a sinkhole affecting a person each year, according to the Insurance Information Institute. So unless you are extremely risk averse, you might determine you don’t need the coverage.
Science behind Sinkholes and Their Coverage
Sinkholes are most common in what are called “karst terrain,” where groundwater gradually dissolves soluble rocks such as salt, gypsum, limestone and other carbonates below the surface and creates a void. That void is what leads to instability and causes a slow or sudden collapse.
Like earthquakes, sinkholes are impossible to predict and that uncertainty is what makes it challenging for companies to price coverage for them. The primary reason for the uncertainty is that there is no efficient system or device to measure where they are located. NASA developed a device called Interferometric Synthetic Aperture Radar (InSAR) that can be an indicator of a sinkhole but is not wholly reliable. It uses satellites and drones to measure changes in ground elevations and has proved more useful in the study of volcanoes and other geological phenomena. Without being able to say for certain if there is a sinkhole below a home, the cost of premiums must to be able to account for unforeseeable losses and the consequential claims.