Is The Texas Fair Plan A Good Home Insurance Policy?

A long time Insurance For Texans customer called into the office last week. Becky was frustrated by the ever increasing of home insurance in Ft Worth. It is a conversation that our agents are having multiple times on a daily basis. The last two years the home insurance marketplace has seen severe constriction in the number of companies offering policies and the prices have grown to a level that makes even the actuaries at the insurance companies blush.

During the phone call with Becky, it came to light that she had shopped our coverage with another insurance agent across town out of frustration with the additional premium she was going to be expected to pay this coming year. We were definitely not mad. We get it. But we also wanted to make sure that Becky was going to have adequate insurance coverage on her most valuable asset. Many of our local friends around town are more worried about the price of the very basic coverage that they offer than the value that people like Becky prefer. She has told us repeatedly that she prefers the promise of certainty when an insurance claim does happen. After all, that is what you are buying with a traditional home insurance policy.

As an independent insurance agency with a broad view of the market, we see a lot of options for both the type of coverage offered and the insurance providers offering policies. We have access to very large, traditional companies and small, private home insurance companies with each option offering something unique. As various companies have quit offering home policies in Texas over the last 24 months, we have seen the available options shrink. This has caused some agents to move to more non-traditional options. One of those is the Texas Fair Plan Association, which Becky is now asking us about. Which is a problem.

What Is the Texas FAIR Plan Association?

The frequency of Texas homeowners being presented with coverage through the Texas Fair Plan is increasing. Becky being one of them. On the surface it may seem like an accessible option, especially when other insurers decline to offer coverage. But it’s important to understand that the Texas Fair Plan should be considered a last resort for Texas homeowners like Becky.

 The Texas FAIR Plan Association is a government run insurance provider that is designed to give high-risk homeowners a source of insurance when no other options are available. If you have a current applicable insurance policy or renewal terms, you are not eligible to secure a FAIR Plan policy. The agent offering you this policy must be able to document that at least two standard market home insurance companies denied coverage to you. If these criteria are not met, your property and casualty agent is not doing their job criteria correctly.

Becky understood this, but was also looking at the price of her renewal policy for her Ft Worth home. She needed to find savings on anything and she wanted to know why this would be such a poor choice since the other agent had told her it was a replacement cost policy.

Reduced Home Insurance Coverages

We told Becky that the Texas Fair Plan does provide coverage. We also had to explain that it comes with significant limitations compared to standard homeowners insurance policies and reminded her that she worries about the promise of certainty if a claim happens. So we clearly defined where she was potentially at risk with limited coverage for her home.

1. Limited Perils Covered: Texas Fair Plan policies typically cover fewer perils than standard homeowners policies. For example, it may severely limit water damage, falling trees, breakage of glass, and freezing of plumbing. All things that Becky was worried about.
2. Lower Limits on Personal Property: If a claim occurs, the coverage limits for personal property under the Texas Fair Plan are often lower. This meant that Becky's belongings might not be adequately protected in the event of a water damage claim or other type of loss at her home.
3. Minimal Additional Living Expenses: If the claims process makes your home become uninhabitable, the Texas Fair Plan might not provide sufficient funds for you to live someplace else while your home is put back together. This fact could make it challenging for Becky to maintain her standard of living during repairs. Bills can rack up in a hurry in this situation.

Becky was not happy that the other agent had not explained these things to her. She knew that hail can fall at any time of year in Ft Worth and that as her home ages the likelihood of a pipe burst or other type of water damage claim happening goes up. The promise of certainty was looking anything but certain in that moment.

And while this wouldn't apply to Becky, we must also point out that wind and hail coverage is not available to policyholders living in a designated catastrophe areas including 14 coastal counties in Texas. This means that you will also need a wind only policy from the Texas Windstorm Insurance Association which is a sister organization to FAIR Plan.

Increased Homeowners Insurance Costs

Now that Becky understood the coverage offered by the Texas Fair Plan, she wanted to know if this was a better or equal deal to other alternative residential property insurance available in North Texas. The only way to see this was to determine how the insurance rates being offered for the options compared in price per value. To do this we showed Becky the cost per dwelling coverage and cost per out of pocket for deductibles.   

1. Cost Per Dwelling Coverage: Becky found that the dwelling limit on her traditional policy was significantly more, especially when extended replacement cost coverage was factored in. That meant she had more dollars to rebuild her home in a total loss which was a much better value for her if the worst happened.
2.  Cost Per Out Of Pocket For Deductibles: When securing a policy via the Texas Fair Plan, it is likely that your deductible will be higher than with a standard replacement cost policy. This means that any savings on average premiums will be eaten up in a claim situation with higher out of pocket costs. Becky really did not like this thought at all.
3. Higher Premiums: In the end, Becky realized that marginal savings on the annual cost of her home insurance policy terms would be obliterated in the claim process. This left her very uneasy that she had considered this option.

Benefits of Alternative Coverage

Now that Becky was convinced that this offer from the Texas Fair Plan was not a good deal, she wanted to know about alternative home insurance options that she could explore. We gladly helped her explore other non-standard insurance companies that would allow her to keep comprehensive replacement cost coverage on her home while trying to find premium savings. Our agent showed her the three requirements that True Texas Home Insurance requires to be considered.

1. Comprehensive Coverage: Standard policies generally offer broader coverage, protecting against more perils and providing higher limits for personal property and additional living expenses. Becky desperately wanted to retain these coverage types. 
2. Customizable Policies: Standard insurance policies can be tailored to meet your specific needs offering endorsements and additional coverages. The private insurers that we would consider must do the same thing. This is one place the FAIR Plan cannot compete.
3. Cost-Effectiveness: While the premiums might seem higher at first glance, the coverage provided by standard policies often proves more cost-effective in the long run, especially when considering potential out-of-pocket costs for claims.

The Role of Experienced Insurance Agents

Many agents might push the Texas Fair Plan or other basic insurance coverage as a quick solution due to the limited markets currently offering coverage in Texas. However, as we've shown this can be a bad option. This is where working with an experienced independent insurance agent who has access to a wide range of carriers can make a considerable difference for people like Becky and yourself. Here are three items that Texas homeowners should always seek when evaluating an insurance agent.

1. Market Access: Experienced agents have relationships with multiple insurers, increasing the chances of finding a standard policy that meets your needs.
2. Expertise: A knowledgeable agent can navigate the complexities of the insurance market, identifying the best coverage options and negotiating better terms on your behalf. This is especially true in Texas. Out of state agents and call centers do not understand hail insurance requirements here.
3. Advocacy: Independent agents work for you, not the insurance companies. Their goal is to ensure you have the best protection possible at a competitive price.

While the Texas Fair Plan can provide necessary coverage when no other options are available, it should be viewed as a last resort due to its reduced coverages, increased costs, and stringent declination requirements. By working with an experienced independent insurance agent like the Insurance For Texans, homeowners can often find more comprehensive, cost-effective alternatives that provide greater peace of mind. That is where True Texas Home Insurance provides the Promise of Certainty to you and your family.

Becky chose to use one of our private market options for home insurance. If you'd like this kind of experience, click the button below to start working with our agents to help you find the right coverage for your Texas home.