Don’t Think About the Beach When You Should be Thinking About Insurance

Not the newspaper you want to see on your vacation over coffee and croissants.

Events of the past few weeks in Hawaii should send second home owners looking for their home insurance policies.  Regardless of whether your property is located in the mountains, by the sea or anywhere else, insurance is critical. Remember, there’s always some disaster to be protected from. And in the case of second homes, their often far-flung location may catch you off guard in insurance matters.

Think about it. You’re used to the potential disasters where you live, but those risks are often different elsewhere. My Dallas home owner’s policy has little need to discuss avalanches, hurricanes, tsunamis or volcanos.  Homes in Hawaii may fall victim to all four, but are unlikely to be concerned with tornados.

The current eruption of Kilauea on the big island of Hawaii (200 miles and four islands southwest of Honolulu) has brought international focus to the spectacle. But aside from the tantalizing images of burbling lava, what’s it like to live in the area?

First of all, Kilauea isn’t a terribly fast-moving volcano. You haven’t seen reports of people caught off-guard and killed by quickly unfolding events. You have seen plenty of pictures of people catching selfies next to the lava. That’s because it’s so slow, it can be easily out-walked. It’s not going to be another Vesuvius, rapidly blanketing Pompeii in lava and ash.  It’s a different kind of volcano.

Kilauea’s latest fissures are opening 20-plus miles downstream from the actual caldera in the Puna district of the island.  Hawaii Island can be a very rural island for locals living away from the high-priced resorts and millionaires’’ mansions on the Kona side of the island. Many homes use water catchment systems and some are off the grid completely,  down unpaved roads.  Puna, and Hilo to the north, were off the beaten track of heavy tourist activity until the advent of Airbnb. Dominating the north-central part of the island is the Parker Ranch, dating from 1850 and now encompassing 250,000 acres.

Volcanic activity has blanketed much of Hawaii Island over the past 1,000 years. Source: USGS

As of this writing, 325 acres have been covered in lava and 40 structures been burned in Leilani Estates and Lanipuna Gardens subdivisions. The lava has flowed underground from the Kilauea caldera before fissures opened bringing the lava to the surface.  The map above details the island’s lava coverage in the past 1,000 years. The southern rift zone, demarcated by the black line, is largely due to Kilauea, the youngest active volcano on the island. These current events are part of a larger eruption that began in 1983.

So your first thought is, “avoid the red areas.” And that’s pretty valid. However, if you fall in love with the rural nature of the area and most importantly the area’s very inexpensive real estate, can you protect your investment? Partially.

First, there is no such thing as volcano insurance in the same way there is earthquake, hurricane, and flood coverage. Lava burns and homes are generally covered against fire, regardless of the source. But if you are in an active volcanic area, some insurance companies won’t offer insurance at all (State Farm stopped insuring in some areas in the 1990s). Others will spell out lava as an exception to fire coverage. The insurance companies offering policies that do not exclude lava as a covered cause of fire can be expensive. One resident was quoted as saying that having lava coverage cost an additional ~$3,000 per year.

However, with volcanos come earthquakes as well as lava.  There are some reports that even for homeowners with lava coverage, insurance companies are claiming damage was from the earthquakes. Without separate earthquake insurance, you may be sunk. Kilauea has spawned thousands of earthquakes of all sizes, including a 6.9 magnitude quake on May 4, which was the strongest felt on the island for nearly 50 years.

So yes, you can find an insurance company who will cover structures … for a price. But that’s only part of the story. If your home wasn’t burned, but rather surrounded by lava that made the home inaccessible, you’re likely on your own. Insurance doesn’t guarantee access to a home.

If the municipality decided not to reopen the road, it would be up to property owners on the street to pay to be dug out. Ditto if the roads get cleared but the home is literally surrounded by hardened lava.

New construction for $399,900.

Risk is one of the reasons homes in the area are so inexpensive. An acre lot in the Leilani Gardens, the subdivision where this event began, was being offered for $17,400 before the eruption. New 2,200 square foot, three-bedroom, two-bath homes, at the northern edge of the southern (red) rift zone, also sitting on an acre are listed for $399,900. In Hawaii, that’s exceptional pricing because a large portion of Hawaiian real estate is the land it sits on. With lava dirt cheap land, what you’re really paying for is almost entirely the actual home.  Many feel that areas that haven’t seen lava in centuries are worth the roll of the dice.  Do you?

Every part of the globe has its natural disasters. The state of Hawaii is some of the newest land on earth. Hawaii Island is the absolute newest. This brings with it the violence of creation. For those seeking a (usually) gorgeous location surrounded by forests and fronting an ocean, there are inexpensive opportunities. But be aware of the added risks and the costs associated with insuring such properties against what many feel is the inevitable.

Remember: When I’m not stirring up trouble in Dallas, Texas or Honolulu, Hawaii for Candysdirt.com and SecondShelters.com, I’m off scouting interesting locations for a second home.  In 2016 and 2017, the National Association of Real Estate Editors recognized my writing with two Bronze (2016, 2017) and two Silver (2016, 2017) awards. If you’re a Realtor with second home clients who’d like me to feature their journey, shoot me an email sharewithjon@candysdirt.com. Be sure to look for me on Facebook and Twitter. You won’t find me, but you’re welcome to look.