Earthquake Coverage for Sinkholes? Why You Might Need This Insurance Endorsement

You may not think you need earthquake coverage. After all, what are the chances you'll be caught in some catastrophic, shaking event? As it turns out, earthquake coverage may offer protection after more common events. That may include sinkholes, which can wipe out the value of an entire property almost without warning.

As reported by CBC, a Nova Scotia family recently discovered their standard home insurance policy would not cover sinkhole damage. After one opened under their home, which was eventually demolished, the family assumed they would receive insurance proceeds. They were, after all, covered for "house collapse." But according to their insurer, this damage was caused by "movement of earth," specifically excluded under their policy.

While the insurer argues the sinkhole is excluded under the home insurance policy, some experts claim it would be covered under an earthquake add-on. So what should you think about when looking for your own policy?

What Does Earthquake Insurance Cover?

What's actually covered depends on the specific wording of your policy. According to the Insurance Bureau of Canada, an earthquake policy generally applies to damage to property or contents due to the "shaking of the earth."

Sometimes, coverage is explained through some linguistic gymnastics. The company that insured the Nova Scotia family offers an earthquake endorsement -- which the family did not purchase -- that has a broad definition of "earthquake." It includes coverage for landslides that result from natural movement due to mining or fracking operations.

If that sounds like a complicated detail, it is. That's why although earthquake insurance can provide essential protection, you must read your policy to understand what's covered. Some earthquake coverage only applies to tremors or shaking -- not landslides or other earth movement.

It's true that even if you read the details in your policy, coverage might be confusing.

What Are the Costs?

Earthquake insurance comes at an additional premium cost than typical home insurance. It also comes with a high deductible, either as a lump sum amount or a percentage of your total coverage. The deductible is usually separate from the one that applies to your standard home insurance.

However, that cost should be weighed against the risk of loss. The Nova Scotia family's property was worth $531,000 before the sinkhole opened up in September 2017. Now, the house has been destroyed and the property's financial value has been wiped out. The family has been forced to continue to pay off the mortgage on that home, causing them significant financial distress.

What if Want to Dispute A Denied Claim?

Let's say a catastrophic event does happen, and you thought you were covered. Do you have any recourse? Licensed insurance companies all have an ombudsperson to handle complaints. You can discuss your issue with this office. If it is still not resolved, you can reach out to the General Insurance OmbudService.

But of course, the best way to handle a dispute is to prevent one. So when you're shopping around for coverage, have a conversation with your insurance company. You have a better idea of what's covered and how you can protect your home.

Search for Home Insurance

If you are a new homeowners or wanted to check out additional home insurance options, review home insurance quotes on Kanetix.ca. You can find the best coverage for your property, whether or not you live in an earthquake zone.