Economy Report: Homeowner's Insurance

By Sam Baker, KERA Morning Edition Host

Dallas, TX –

Large inventory and lower prices in a down housing market has created opportunities for some. But buying a home means buying homeowners insurance. Lenders require it and coverage is not cheap. Texas has some of the highest rates in the nation because of the state's severe weather. You can shop around, but in our economy segment, Jack Evins of the state insurance department's consumer protection program tells KERA's Sam Baker there are some basic items lenders expect.

Jack Evins: Well, they're going to want to make sure that the structure, that the property is adequately covered to at least the amount that secures the amount of the loan that they've extended to you. To be sure, the property itself has value, but improvements on that property, which might be subject to damage due to the various perils, which are principally your residence and your outbuildings and so on, those would need to be covered at least to the amount to satisfy the lienholder's interest. We would encourage consumers to consider whether or not they are comfortable with their own deductible amounts. Those can influence the premiums; the higher the deductible a consumer can afford to maintain on their own the lower the premium would be, but the consumer has to be prepared to pay out that deductible in the event of a covered loss.

Conversely, a lower deductible will result in a higher premium. Another issue that should be considered would be whether the policy that one is considering purchasing is an actual cash value policy as opposed to a replacement cost policy. An actual cash value policy is designed to cover the depreciated value of the property that's insured. Which is, to say, if you've lost a 15 year-old roof the company's only obligated to reimburse you for the value of the 15 year-old roof. The replacement cost policy, on the other hand, would require the insurer to replace the roof with a new roof of like kind and quality.

Sam Baker: Are the days of one-policy-covers-everything regarding your home over?

Navigate the recession with KERA! Get tips on avoiding foreclosure, access job resources and more at kera.org/economy. Jack Evins: I guess if you are along the coast, that might be more the case where wind exposures are more often excluded. And, of course, no homeowners policies are going to cover flood. To the extent that you're concerned about a flood exposure, and most people should be, they may need to be considering a flood insurance policy from the National Flood Insurance Program. But for your usual perils: fire, lightning, burglary, vandalism and so forth, the policies are available out there. The policies do vary, you need to be sure that you discuss with your agent how those policies that they may be offering you vary from one company to the other. But, the policies also afford a great deal of flexibility so that consumers can perhaps more readily find coverage that more precisely fits their individual needs. But it does require a good deal of shopping around, and do understand that no only do the policies differ, but the premiums differ substantially company to company. We hope that people will consider more than just price when they're looking at shopping around. They should be considering the strength of the company and the records that we have at our agency about how well they've been treating their customers through their complaint histories.

Sam Baker: Back during the nineties we had that famous trial over damage from mold. To what extent did that change or impact homeowners coverage in Texas?

Jack Evins: When companies were permitted to offer alternative forms of homeowner coverages you found most companies truncated the coverage that they had for water-related damages like mold substantially. Now, there are a number of companies that will sell endorsements that are available at an additional cost that may extend the standard coverage for damages related to mold. If that's a concern that a consumer has, they should certainly be asking those types of questions when they're dealing with their company or agent about the extent to which mold-related damages might be covered either through the core policy or via endorsement.

Sam Baker: Plenty of companies and agents to choose from... I'm curious, to what extent, though, do credit scores help determine if a company or agent wants to choose you?

Jack Evins: Not all companies apply credit scores, but many, many do. The premise is that people with better credit scores tend to be better risks. So, people with better credit scores often qualify for lower premiums. But not every company even makes reference to credit scores, so that's another thing people need to consider as they're shopping around.

Sam Baker: Any other potential pitfalls to watch out for when shopping for insurance?

Jack Evins: Make sure you're dealing with a licensed company. Make sure that you're not underinsured. You don't want to have a policy, that, say, only insures your value to 50% of its actual replacement cost, because that'll get you into a situation that sometimes is referred to as 'co-insurance'. Which will end up meaning that the company will reimburse you less than you might expect that you would be covered for. Essentially they'd treat you as though you have assumed a proportionate share of the risk going beyond your deductible if your home is significantly underinsured.

Jack Evins is with the Consumer Protection Program and is Director of Advertising for the Texas Department of Insurance. You can find links to department resources to compare insurance companies, policies and prices at KERA.org/economy.

Email Sam Baker