Electromagnetic theoretical analysis was usually used to investigate the pulsed terahertz wave interaction with the medium. For epoxy coatings, the material dispersion of the coating was often simplified or ignored in the traditional propagation model. It is difficult to elaborate on the propagation mechanism and to differentiate the coating deterioration as serving time increases. An improved propagation model based on the finite-difference time domain was established to characterize the propagation in the epoxy protective coating under broad-band terahertz radiation. Either an intact or defective coating structure was investigated, and the simulated results were compared with the experimental test. The dissipation mechanism was considered in the proposed model. The results indicated that the terahertz reflections varied with the change in optical and dielectric properties caused by coating aging, which influences the intrinsic impedance of the medium. Moreover, it could well elucidate the propagation mechanism of pulsed terahertz waves in rusted, defective coating structures.