Homeowners Insurance Made Easy
HOME INSURANCE COVERAGE IN TEXAS
You may not be aware of it, but the state of Texas allowed a big change in Home Insurance or Homeowners Insurance (as it is known) a few years ago. Among other things, that big change allowed insurance companies to choose from a variety of different Insurance Policy Forms, and/or create their own Insurance Policy Forms. It allowed them to package insurance coverage to produce competitive ‘price points’ with specific ‘coverages’ that frankly sometimes don’t provide you with the best insurance coverage for your specific needs.
Some policies will cover only those ‘Perils’ (a peril is a named cause of loss) specifically stated in the policy. Other policies will cover all Perils, unless the policy specifically excludes them.
That’s why it’s so important to understand homeowners insurance and not just buy a policy because it’s a good price. Read your policy carefully because coverages can vary by policy and company. Pay special attention to the exclusions section, which lists the things your policy doesn’t cover. The front page of your policy called the ‘Declarations’ or Dec Page shows the exact name of your insurance company, your policy number, and the amount of each of your coverages and deductibles. Remember you are protecting against loss for the most expensive single investment that you will probably ever purchase in your lifetime.
What is Homeowners Insurance?
Homeowners insurance is a package policy. This means that it covers both damage to your property and your liability/legal responsibility for any injuries and property damage you or members of your family cause to other people. This includes damage caused to others by household pets.
OK, now lets say it another way. Homeowners insurance provides financial protection against covered ‘disasters’ sometimes referred to as ‘a cause of loss’ or a ‘peril’ in a homeowners insurance policy. A standard policy insures the home itself and the things you keep in it as well as protection against third party loss. Simply put, homeowners insurance is protection for loss of your ‘investment’.
Damage caused by most disasters is covered but there are exceptions. The most significant in Texas are damages caused by a flood. You must buy a separate policy for flood insurance to have coverage for this disaster.
Maintenance-related problems are the homeowners’ responsibility and not covered by your homeowners insurance policy. Factors that determine ‘Insurance Replacement Cost’ to rebuild your home after a covered disaster has damaged or destroyed it include: local construction cost, the square footage of the structure(s), the type of exterior wall construction, the style of the house, the number of bathrooms/amenities in the bathrooms, kitchen amenities, common area amenities, other rooms amenities, fireplaces, type of roofing materials, exterior trim, special features, debris removal, other structures on the premises and overall improvements that have added ‘value’ to your home/property; not the County Central Appraisal District Value nor a Local Real Estate Appraisal.
Most Banks and Mortgage Companies today require you to buy: A ‘Replacement Cost’ Homeowners Insurance Policy to cover the amount of your mortgage or the 100% percent insurance replacement cost value of your house. If the dollar limit of your insurance policy is based on your mortgage, make sure it’s enough to cover the cost to rebuild your home at today’s construction prices or you may find you’ve short changed yourself and you won’t have enough money to rebuild your home in the case of a covered disaster. It is highly recommended you purchase enough insurance to cover the 100% percent insurance replacement cost value of your home.
Lets talk about a ‘Replacement Cost Homeowners Policy’ vs. what is known in the insurance industry as an ‘Actual Cash Value Homeowners Policy’.
Replacement Cost Policies for your home include what is known as a ‘deductible’ or the portion of out-of-pocket expense you as the homeowner owe as your portion of payment toward a ‘covered loss’ up to the dollar limits in your policy.
An Actual Cash Value Policy will require you to not only pay your required deductible but will charge what is called ‘depreciation’, the decrease in value of your home due to age, wear and tear and other factors.
In today’s economic environment it is highly recommended you purchase a Replacement Cost Policy. Most Replacement Cost Policies cover at replacement cost the following: a covered damage or ‘cause of loss’ to the structure of your home and can also include replacement cost coverage for your personal belongings as well. A Replacement Cost Policy pays for the repair or replacement of the damaged property with materials of similar kind and quality. There is no deduction for depreciation (except on wear-and-tear items like a fence or awning for example.)
Homeowners policies in Texas generally fall into one of the following three categories:
1. Basic Homeowners Insurance Policies can typically cover common perils (causes of loss), such as damage from Fire, Lightning, Sudden and Accidental Damage by Smoke, Windstorm, Hurricane and Hail, Explosion, Riot and Civil Commotion, Aircraft and Land Vehicle, Vandalism and Malicious Mischief.
2. Better Homeowners Insurance Policies can typically provide everything a Basic Policy can plus coverage for additional perils (causes of loss), such as Theft or Attempted Theft, Total or Partial Collapse of the Building, Falling Objects, Sudden and Accidental Discharge, Leakage, or Overflow of Water or Steam from within a plumbing system, heating system, air-conditioning system or household appliance and must be sudden and accidental, (coverage may or may not also include Sewer and Drain Back-Up). Freezing of Plumbing, Heating, Air Conditioning and Domestic Appliances may also be covered, and Accidental Residential Glass Breakage may also be covered.
3. The Best Homeowners Insurance Policies cover against all types of losses except those the policy specifically excludes.
Home Insurance includes essential types of coverage such as:
- Coverage for the Structure of your House and Other Structures
- Coverage for your Personal Belongings
- Comprehensive Personal Liability Coverage
- Loss of Use Coverage and/or Additional Living Expense in the event you are temporarily displaced from your home because of a fire or other insured disaster
1. THE STRUCTURE OF YOUR HOUSE AND OTHER STRUCTURES
This very important part of your home insurance policy pays to repair or rebuild your home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disasters listed in your policy (sometimes referred to as ‘causes of loss’ or ‘perils’) up to the limits of insurance coverage allowed on ‘the structure of your house’. What that means (for example) is that if an insurance company says your house has a 100% percent replacement cost value of $100,000 dollars and it is destroyed by a covered disaster in your homeowners policy then the insurance company will pay to repair or rebuild your home up to the limits of your policy coverage, $100,000 dollars. It will not pay for damage caused by a flood, earthquake or routine wear and tear. When purchasing coverage for the structure of your home, it is important to buy enough to rebuild your home if it is destroyed by a covered event.
That’s why it is so important that you understand what is covered and what is not covered in your homeowners insurance policy. Price should only be one determining factor in your purchase of homeowners insurance. Insurance value and the best coverages for your specific needs are the most important factors to consider when buying insurance.
A good rule of thumb is that you should review how an insurer packages ‘coverages’ for the structure of your home:
Basic Disaster or Named Cause of Loss Coverage is just that, Basic: It can cover Fire, Lightning, Sudden and Accidental Damage by Smoke, Windstorm, Hurricane and Hail, Explosion, Riot and Civil Commotion, Aircraft and Land Vehicle, Vandalism and Malicious Mischief.
Better and Extended Disaster or Named Cause of Loss Coverage: Typically it can provide basic coverages (listed above) plus Theft or Attempted Theft, Total or Partial Collapse of the Building, Falling Objects, Sudden and Accidental Discharge, Leakage, or Overflow of Water or Steam from within a plumbing system, heating system, air-conditioning system or household appliance and must be sudden and accidental, (coverage may or may not also include Sewer and Drain Back-Up). Freezing of Plumbing, Heating, Air Conditioning and Domestic Appliances may also be covered, and Accidental Residential Glass Breakage may also be covered.
Best All Risk Coverage: Typically it can provide coverage against all types of losses except those the policy specifically excludes.
Remember, not all policy types are the same and not all extend to these important Disasters or Named Cause of Loss (also know as Perils) as listed here-in; the Best Policy Types can cover what is know as ‘All Risk’ or coverage against all types of losses except those the policy specifically excludes.
Other Structures that are detached from your home such as a garage, tool shed, fence or gazebo are typically covered in this portion of your policy as well. Generally, these other structures are covered for 10% percent of the amount of insurance you have on the structure of your home. If you need more coverage, talk to your insurance agent about purchasing more insurance for other structures, it is available to you as an addition to your policy.
Special Note: Fences, Awnings and other Wear and Tear Items will typically also include depreciation.
2. YOUR PERSONAL BELONGINGS
Your furniture, clothes, sports equipment, computer and other personal items are covered if they are stolen or destroyed by fire, windstorm or other insured disasters. Most insurance companies provide coverage from 40% to 60% percent of the amount of home insurance you have on the structure of your house with ‘actual cash value’ or ‘replacement cost’ coverage. So for example if you have $100,000 dollars worth of insurance on the structure of your home, you would have between $40,000 to $60,000 dollars worth of coverage for your belongings. The best way to determine if this is enough coverage is to conduct a home inventory and review it with your insurance agent. Again, additional coverage is available to you as an addition to your policy.
This part of your policy also includes off-premises coverage. This means that your belongings can be covered elsewhere in the world. Most companies limit the amount to 10% percent of the amount of insurance you have for your belongings.
You may also have $100 to $500 dollars of coverage for Money/Bank cards. This can be for money, coins, medals, or numismatic property.
Expensive items like jewelry, furs and paintings are covered. There are usually dollar limits if they are lost due to a covered peril. Ask your agent about this specific sort of coverage for your home insurance, it may be important to ask about additional insurance available for items like these. To insure these items to their full value purchase a Special Personal Property Endorsement or Floater.
Special Personal Property Endorsement or Floater. It allows you to insure certain ‘appraised value’ items to their full-appraised value. Coverage typically includes accidental disappearance meaning coverage if you simply lose that item, and there is no deductible.
3. COMPREHENSIVE PERSONAL LIABILITY PROTECTION
Liability in a homeowners policy covers you against lawsuits for bodily injury or property damage that you or family members cause to other people. It can also pay for damage caused by your pets. So, if your son, daughter or dog living in your household accidentally ruins your neighbor’s expensive rug, you are covered up to your policy limits. However, if they destroy your rug, you are not covered. Remember, this portion of your policy typically covers third party loss.
The liability portion of your home insurance can pay for both the cost of defending you in court against claims or suits brought against you and any court awards up to the limit of your policy coverage. You are also covered not just in your home, but also elsewhere in the world.
Good liability limits coverage generally starts at about $100,000 dollars. However, experts recommend that you purchase at least $300,000-$500,000 dollars worth of protection. You can also purchase an Umbrella Policy or Excess Liability Policy coverage that provides broader coverage, including claims against you for libel and slander. Ask your Agent about Higher Liability Limits and/or Umbrella Coverage to a Million Dollars or more.
You can never have enough coverage here as this coverage acts as your first line of defense against fending off lawsuits and it is a relatively cheap way to support what could be a costly event.
No-fault Medical Coverage is included here as well. In the event a friend or neighbor is injured in your home, he or she can simply submit medical bills to your insurance company instead of filing legal action against you. You can generally get $1,000 to $5,000 dollars worth of this coverage. It does not, however, pay the medical bills for your family or your pet.
4. LOSS OF USE and/OR ADDITONAL LIVING EXPENSES
This portion of your home insurance pays the additional costs of living away from home if you can’t live there due to damage from a fire, storm or other covered insured disaster. It covers hotel bills, restaurant meals and other living expenses incurred while your home is being rebuilt. Coverage for additional living expenses differs from company to company. Most policies provide coverage for 20% percent of the dollar coverage you place on the structure of your house.
Disclaimer: Content and illustrations represented and provided here-in are for informational purposes only. This information should not be misconstrued to be considered Insurance or Binder Coverage for Insurance. Always consult a licensed insurance agent in the state of Texas for specific insurance coverage types and needs analysis as insurance policies in Texas vary.
Sources used to gather content for this Article and all Articles provided in this Series include:
The Costlow Insurance Group, Inc. / www.costlowinsurance.com
a. The Insurance Information Institute / http://www.iii.org
b. The Texas Department of Insurance / http://www.tdi.state.tx.us
Homeowners Insurance In Texas Made Easy