Sinkholes and Homeowner’s Insurance in New Jersey
Sinkholes have recently become a prominent issue in New Jersey, raising questions about homeowner’s insurance coverage. Following the appearance of a second sinkhole on Interstate 80 east in Wharton in February, many homeowners are wondering if their standard insurance policies will protect them from such events.
Most standard homeowner’s insurance plans, according to various insurance providers, do not include coverage for property damage caused by sinkholes. In fact, damage resulting from earth movements is generally excluded from the most basic homeowner’s insurance policies. This also applies to events such as earthquakes, landslides, and mudslides.
While the state is responsible for repairing infrastructure damage like the Interstate 80 sinkhole, homeowners need to know what their insurance covers if a sinkhole damages their property.
The New Jersey Division of Banking and Insurance’s guidelines for homeowner’s insurance also exclude coverage for sinkhole damage. The division recommends that homeowners consult with their insurance providers to understand their specific policy details.
Options for Sinkhole Coverage
Fortunately, some insurance companies offer ways for homeowners to protect themselves against sinkhole damage. Two primary options exist:
- Separate Policy or Endorsement: Some insurers provide a separate policy or an add-on endorsement to existing homeowner’s insurance policies that specifically covers sinkhole damage. This typically incurs an additional premium. Progressive is among those offering this option.
- Separate Deductible: A separate deductible is another mechanism for covering sinkhole-related damage. The deductible amount is often a percentage of the home’s insured value. Stella Lemberg, a representative of ABA Insurance Agency, a division of Pinnacle Risk Solutions, noted that this is a common approach.
Companies like Hanover, Travelers, and Farmers offer sinkhole-specific policies or add-on coverage. For instance, Hanover has an add-on cost of around $250 annually for sinkhole coverage, with the regular homeowner’s deductible applying to covered damage. According to Lemberg, “Each company has their own nuance and pricing structure in New Jersey for sinkholes.”
States like Florida and Tennessee have mandates requiring insurance companies to offer optional sinkhole coverage, but New Jersey does not.
Areas in New Jersey Most at Risk
Sinkholes are more prevalent in certain areas of New Jersey. The northwest region of the state has a higher risk of sinkhole occurrences. Counties such as Warren, Sussex, Hunterdon, Morris, Somerset, and parts of Passaic are more susceptible compared to other areas in the state.
In addition to sinkhole damage, standard homeowner’s insurance policies also commonly exclude coverage for events like war, nuclear hazards, rodent infestations, and pollution. Given the variability in insurance plans, it is wise for homeowners to review their policy or contact their provider to ascertain the specific inclusions and exclusions.
