If you’re excited about buying your first home, then you probably haven’t had a chance to sit down with your mortgage lender yet and learn all the minutiae that goes into purchasing and maintaining a home. The good news is that buying home insurance isn’t as complicated as buying the home you are insuring; the bad news is that it isn’t quite a walk in the park, either.
The wide variety of natural disasters that can cause property damage in Texas is pretty staggering. Between tornadoes, hurricanes, hail, floods, and more, it’s a wonder homeowners insurance rates aren’t higher than they are. The best way to protect yourself is with an HO-3 policy, also known as a “special form” policy. It provides some of the most comprehensive coverage available without costing an arm and a leg in yearly premiums.
|Types of Coverage||Coverage Amount|
|Replacement Cost (Dwelling)||$250,000|
|Replacement Cost (Contents)||$125,000|
Based on current Texas property values, the chart above contains recommended estimates based on a $250k home. Usually, insurance agents recommend $100k in liability coverage and at least 50% of your home’s value for your personal property coverage. But you can discuss the specifics with your insurance company and figure out the best coverage for your home and property.
There are only modest variations in Texas homeowners insurance premiums from one company to the next. But that doesn’t mean you shouldn’t get quotes from a few different companies before you settle on a policy. At the very least, you can save yourself between $200-$400 per year on your premium.
The only way you are absolutely and unconditionally required to purchase home insurance is if you are using a mortgage loan in order to pay for your house. The vast majority of banks will require you to purchase some form of coverage, just in case. Once you finish paying off your house, or if you buy it outright in cash, you technically don’t have to purchase insurance; but imagine how much financial trouble you will be in if some disaster destroys your uninsured home.
You will want to have your home inventory ready and raring to go before you start shopping around for a good deal on your home insurance. If not, you could end up spending too much money on your personal property coverage. While this may seem insignificant, the truth is it can have a significant impact on your premiums. Overestimating leads to too much coverage, and higher annual premiums. Underestimating can save you money with lower premiums, but you’ll have to shell out some serious cash when your insurer doesn’t pay enough on your claims.
The basic HO-3 policy that many Texas home insurance companies offer does not necessarily cover every potential disaster that your home or your property may face. Before you sign the paperwork on your policy, make sure to talk to your insurance agent about:
Choosing between replacement cost coverage and actual cash value coverage involves navigating some tricky waters. Covering your dwelling and/or property with replacement cost coverage means that your insurance company will pay out more money if they decide to honor your claim – usually 100% of what it would cost to repair/replace the damage today. But having a lot of replacement cost coverage will cost you more in premiums.
On the other hand, actual cash value will save you money in premiums, but will cost you a pretty penny when you need to file a claim. Actual cash value subtracts the depreciation of your damaged property from your total payout. So if you’re fixing an old roof or replacing a damaged refrigerator that is several years old, you will be paying your deductible + the cost of depreciation; your insurer will pay the rest.
Instead of making a hard check and looking at your entire credit history (which can be bad for your overall credit score), homeowners insurance companies in Texas often check what is called an insurance score. This score only includes your credit history with other insurance companies, especially with regard to claims filed and whether or not you pay your premiums on time. Your insurance score is usually higher than your full credit score, which can save you some money on your overall annual premium.
For more information, feel free to click any of the links you see in this article. They all lead to more detailed information about homeowner’s insurance, specifics on purchasing a policy, and how to find the best deal. You should also contact local resources in your state, such as:
Or contact them directly through the following resources:
Texas Department of Insurance
Austin, TX 78701