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Do you need sinkhole insurance?

A few sinkholes make headlines each year, such as the one that swallowed a Florida man in his bedroom in March 2013. But many more Americans in states other than Florida may be at risk of experiencing sinkhole damage, which could ultimately cost a homeowner thousands of dollars.

Sinkholes are areas in which the surface of the earth literally opens up. They can form suddenly or gradually over time. According to the Florida Sinkhole Research Institute, sinkholes occur when underlying rock, such as limestone, dissolves, creating voids beneath the surface of the earth. The ground then collapses into these voids, creating a sinkhole.

The U.S. Geological Survey (USGS) estimates that nearly 20 percent of terrain in the United States could experience the effects of a sinkhole. The states most at risk: Florida, Texas, Alabama, Missouri, Kentucky, Tennessee and Pennsylvania. However, that doesn't mean other states are off the hook. Sinkholes have recently formed in states including Louisiana, New Jersey as well as the District of Columbia

How much does sinkhole damage cost?

All homeowners and business owners who own property in sinkhole prone areas should consider whether they have enough insurance to cover the resulting damage, says Joshua Goodman, a member of the sinkhole task force for law firm Cozen O'Connor.

sinkhole insuranceWhile there's no clear way to predict whether a sinkhole will occur on your property, you can find out if you live in a sinkhole-prone area by checking with the USGS, or state geological surveys – organizations that collect geological information about each state.

If a sinkhole should occur on your property, it can cause a range of damage from minor cracking in walls to the destruction of entire structures.

The amount of any sinkhole insurance claim is directly related to the severity of the damage, which can vary from a few thousand to millions of dollars, Goodman says. For example, in the state of Florida, sinkhole claims cost insurers about $1.4 billion from 2006 to 2010, Goodman points out. The average claim was about $56,000 --  –“a significant amount for…property owners," Goodman adds.

Does your home insurance cover sinkholes?

In most states, your home insurance policy doesn't cover sinkhole damage though some states require insurers to offer optional coverage for an additional premium, according to the Insurance Information Institute.

However, the state of Florida is unique. In Florida, home insurance policies must include coverage for what's known as "catastrophic ground cover collapse." ‘Ground cover’ is a phrase that describes the area of the earth (covering the ground) that opens up. Under the Florida law, according to the Florida Department of Financial Services, if a sinkhole occurs under your home, you would be covered if the incident meets four criteria:

1. The collapse of the ground cover in an abrupt manner.

2. A resulting depression in the ground cover that can be seen by the naked eye.

3. Damage to the building’s structure and foundation.

4. An order that the building be condemned and vacated.

In other words, a Florida homeowner’s policy would likely cover the extreme case where the back of the house disappears into a sinkhole, but it might not cover cracks in the foundation if your home is still habitable. To have coverage for the latter under Florida law, you may need optional sinkhole activity coverage, which is typically available through a rider, or addition, to your home insurance policy.

Should you buy additional sinkhole coverage

When determining whether you should buy additional sinkhole coverage, you should first figure out how much the coverage will cost and whether you're willing to pay that much, says Werner Kruck, chief operating officer of home insurance company Security First Insurance Company, based in Ormond Beach, Fla. In sinkhole-prone areas, adding sinkhole activity coverage could more than double the cost of your premiums, Kruck says. Most Florida insurers would require an inspection and could even decline coverage if your home already appears to have existing sinkhole activity.

In states other than Florida, you'd also need to consider your risk of incurring sinkhole damage. The III points out that the chances are low and researchers estimate that each year, there's a 1 in 100 chance of a catastrophic sinkhole, one that causes extreme damage or destruction. Depending upon the likelihood of sinkhole activity in the region, the cost of sinkhole coverage may be significantly less in other parts of the country. For example, according to the Pennsylvania Department of Environmental Protection, some insurers offer low-cost sinkhole coverage that would take care of damage to structures but not land repairs.

Whether or not you decide to buy optional sinkhole coverage, if you live in a sinkhole-prone area, the USGS recommends that you watch for holes or cracks in the ground or your home's foundation. If a sinkhole opens on your property, the Pennsylvania Department of Environmental Protection recommends that you:

  • Cut off access to the hole.
  • Contact emergency responders.
  • Take photographs for documentation (without getting too close).
  • Avoid going down into the sinkhole or trying to fill it yourself.

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