I’m thinking about dropping standard sinkhole insurance coverage and opting for the catastrophic ground cover collapse option to save some money. Is this a good idea?

Under the catastrophic ground cover collapse option, the house must be so badly damaged that you literally cannot legally live there. I say “legally” because, to get your home repaired, you must demonstrate four signs of sinkhole damage:

  1. The damage must result from an “abrupt” collapse of the ground (not defined).
  2. There must be a visual depression in the ground visible with the naked eye.
  3. The damage must rise to a level of actual, structural damage.
  4. The insured structure must actually be condemned and ordered to be vacated by the government, hence the legal right to live there being extinguished.

Evaluate If You Are a Good Candidate

If your intent is that your home can be a place you will live in and you have other housing options, you might want to consider this option. However, if you are like most people and you are concerned about the value of the property, which these sinkhole signs threatens, this is a dangerous option. Think about it this way: Try selling your house and telling the new owner that, while there is confirmed sinkhole activity on the property (and has damaged it), there is no concern about the home because it hasn’t yet been condemned. Realistically, the new option is not sinkhole coverage at all because if you have sinkhole activity with even minimal damage, the house is worthless. (Read more about the difference between the two plans.)

Evaluate How Much You Will Actually Save

You also need to consider the actual premium savings. I recently represented a homeowner on a case where she bought the new coverage and later found out that her home had signs of sinkhole activity. When we met with her, we determined that by moving to the catastrophic collapse coverage, she saved three percent (3%) on her premium. The average repair costs to her home ended up being half of the value of the property. Luckily, we were able to demonstrate that the loss had actually manifested itself before she lost the sinkhole coverage, and we got the claim paid.

Evaluate the Cost to Switch Back Later

On another note, to avoid a scheme many homeowners have tried – many times to their peril – some homeowners have tried to dump their standard coverage, with the idea that they would add sinkhole coverage back, if they detect sinkhole signs. This does not work. This is because most homeowners”™ insurance companies, who offer this coverage, mandate that the homeowner conduct a comprehensive subsidence investigation, like the one they would ordinarily do to investigate for sinkhole activity. This must be done at the expense of the homeowner and can cost between $10,000 and $15,000, eliminating any savings.

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