What Is Sinkhole Insurance and Who Needs It?

A specific type of natural occurrence, sinkholes happen when underground water dissolves rock. Over time, the diminished rock can create spaces where the ground might settle or sink. The resulting sinkhole can damage a home or cause it to collapse completely, making it unlivable.

You can usually purchase sinkhole coverage as an optional addition to a home insurance policy. Normally, the coverage will require an extra premium. Depending on where you live, you may face a bigger risk of sinkhole damage. Some states, like Florida and Tennessee, require insurance companies to at least offer this coverage.

Here’s what you need to know about sinkhole insurance, and how it works in the United States.

What is sinkhole insurance?

Insurers design sinkhole insurance to cover structural damage due to sinkhole activity on your property. It’s not usually part of a standard homeowners insurance policy, so insurers might offer it for an extra premium.^[1]

If a confirmed sinkhole opens up your property and damages a structure, your insurer might not cover the costs to repair or replace it if you don’t have specific sinkhole insurance for it. Insurers are more likely to approve your claim for sinkhole damage if you do have the proper sinkhole loss coverage.

When you buy a home in an area that the U.S. Geological Survey has identified as likely to have sinkholes, it might make sense to see if you can add this coverage to your homeowners policy.^[2]

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What is a sinkhole?

Sinkholes tend to occur more commonly in areas with groundwater and limestone. Experts suggest that groundwater can dissolve the limestone. Over time, the spaces and cracks left behind weaken the area. Eventually, it’s weak enough that a portion of the ground above collapses. If a house sits on the land above a sinkhole, it can result in structural damage or even the complete collapse of the house.^[3]

The U.S. Geological Survey identifies Alabama, Florida, Kentucky, Missouri, Pennsylvania, Tennessee, and Texas as the states most at risk of sinkholes. However, a sinkhole can open up anywhere. The risk, even in a state with higher risk, of a catastrophic sinkhole comes out to about a one-in-100 chance in a given year, according to the Insurance Information Institute.

The three main types of sinkholes include:

1. Dissolution: These sinkholes tend to occur near exposed or shallow bedrock at the surface due to rainfall and other water filling up the cracks and fractures in the bedrock.

2. Cover-collapse: This type of sinkhole results from fluctuations in underground water. These trigger the sinkhole after the ground beneath the surface has been weakened. They often occur suddenly.

3. Cover-subsidence: These form gradually and may even appear as a slight depression. The sinkhole forms slowly over time, and some visible clues may include tiny cracks in the foundation of the home. However, these can eventually crumble as well.

What does sinkhole insurance cover?

Most home insurance companies don’t include sinkholes in their standard coverage. If you live in a state more prone to sinkholes, your insurance company might offer optional sinkhole coverage. In order to receive compensation for the loss of your home and personal property due to a sinkhole, you need to meet specific requirements:

• Signs of sinkhole activity: Your property needs to show signs of sinkhole activity, such as groundwater and limestone underneath. An investigation including geological testing will determine if the activity matches that of natural sinkholes.

• Confirmation that a sinkhole caused the damage: If the testing confirms that a sinkhole caused the land surface collapse, then your insurer should pay your sinkhole claim. This includes replacing the contents of personal property, repairing or replacing the damaged structure, and hopefully fixing the sinkhole.

• Man-made sinkholes: In some cases, sinkhole coverage only applies to natural causes, not man-made causes. Review the coverage to make sure your policy covers various potential causes of structural damage from humans.

• Structural bracing: If it appears that the subsidence of soil might indicate risk, or if you can see small holes and other issues, the coverage might also include mitigation measures. This includes structural bracing, other ways of shoring up the lateral loads of the overall structure, or finding methods to affect the influence zone of the supporting ground.

Who needs sinkhole insurance?

Deciding if you need sinkhole insurance in addition to standard home insurance will depend on your situation and where you plan to buy a home. Some states require insurers to offer sinkhole coverage for policyholders at risk. For example, Florida law requires that insurers at least provide the option for an appropriate additional premium.

"You can ask your insurance agent if lots of clients in your area opt to have this type of insurance," says Jesse Cunningham, a licensed independent agent and agency owner of Bauple. "It’s common in areas with a lot of limestone since limestone leads to conditions for sinkholes."

If you can’t get additional coverage for sinkholes, you might need to get a stand-alone policy designed to protect against sinkhole collapse. You can talk to your county appraiser, state insurance regulators, or an insurance agent to get a better idea of the risk in your area. Get a neutral evaluation before buying the home, and check with your local government agency to find out what you need beforehand.

How much does sinkhole insurance cost?

The extra cost of a sinkhole rider or a separate policy depends on various factors, including where you live, the risk of sinkholes in the area, and the appearance of the surface of the ground. You may find quotes of between $2,000 and $4,000 a year for sinkhole insurance because costs can be high for replacement and land repairs for catastrophic damage.

Sinkhole insurance vs. catastrophic ground cover collapse

Sinkhole insurance coverage and catastrophic ground collapse coverage differ slightly. Florida statutes, for example, define sinkholes as a specific type of landform caused by the gradual sinking of the ground due to underground movement. Your insurer may not need to cover damage from a sinkhole, but it will likely need to cover catastrophic ground cover collapse due to the structural damage, condemnation, and order to vacate the property.

"In order for you to file a claim with a catastrophic ground cover collapse, the building must be structurally compromised due to the ground collapse, and the government must condemn it," Cunningham says.

If you’re concerned that there might be a safety hazard on your property that could result in collapse or sinkholes, you should consider getting coverage — and asking if you should get both types of coverage.

Here’s what needs to happen for sinkhole insurance and catastrophic ground cover collapse (CGCC) to kick in:

Where can you get sinkhole insurance?

As with insurance for earthquakes, floods, and other natural phenomena, you’ll need to find out if you have access to coverage for sinkholes. Check with your state’s insurance regulators or property insurance authority to find out what the state requires of insurers.

In areas where geological activity might cause sinkholes, you can talk to an agent about purchasing a rider or a separate policy. The insurer might require a professional engineer to check your property and the home’s foundation to confirm the risk before you can access those insurance products.

How to compare sinkhole insurance quotes

If you identify sinkhole activity or have reason to believe that the ground surface might collapse and cause major structural damage or minor cosmetic damage, you should mention it to your insurance agent. You can also use an online comparison service to see what options you have for sinkhole loss coverage.

Review different policy terms to find out if the policy covers other structures in addition to the principal building and attached structures. Try to get quotes from at least three to five companies and read reviews to get an idea of customer support offered by each company. After you review each insurer’s approved underwriting and get quotes, you can choose the policy most likely to meet your budget and coverage requirements.

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