Stephen is a Frisco homeowner living in the bullseye of the North Texas hail track each spring. With each storm that passes through, the risk of a hail claim on his roof goes up. He keeps watching his homeowners insurance premiums lurch upward wondering what comes next. He knows that the insurance companies have to change their approach to rate insurance differently as it feels like the annual premium hikes are unsustainable. He wonders what is coming next.
Unfortunately, where you live in Frisco like Stephen or Austin, this predicament has become all too common among Texas homeowners. The insurance carriers that are still selling homeowners policies in Texas have now begun to change the way that they are handling the coverage for damage from the frequent storms. The insurance providers are quickly trying to shift more risk back to homeowners in the form of significantly higher out of pocket expenses on these hail claims.
After a recent severe storm pelted Stephen's neighborhood with hail and wind damage, leaving a trail of claims for roof damage in its wake, he was confronted with the reality of these home insurance terms changing. Stephen had always carried a 1% deductible for his storm deductible. The roof repair was going to have a 2% deductible instead. He wasn't sure exactly what that meant other than it was going to cost him more money out of pocket. As Stephen navigated his claim situation, it shed light on a broader issue plaguing homeowners across hail territory: the confusion surrounding the rising cost of deductibles and changes in claims settlement for Texas homeowners.
A deductible, in the realm of Texas homeowners insurance, serves as a risk-sharing mechanism. It effectively transfers a portion of financial risk back to the policyholder from the insurance provider. Over the years, the application of deductibles in home insurance policies has evolved, reflecting changes in the industry's approach to risk management. We've moved from a flat dollar deductible of $500 about 15 years ago to much larger amounts that are calculated and grow over time with the inflation of your home rebuild value.
It's also important to note that Texas law has adapted over time. In years past, roofing contractors would waive the insurance deductibles at the completion of the work. In 2019 the state legislature put a law in place mandating that contractors must collect the deductible payment directly from homeowners or face a Class C misdemeanor. This shift underscores the importance of understanding the nuances of homeowners insurance, risk transfer, and the legal landscape shaping Texas home insurance which includes the specifics of deductibles for wind & hail.
The deductible is the amount a homeowner is responsible for paying out-of-pocket before their insurance coverage kicks in. It acts as a form of risk-sharing between the homeowner and the insurance company. Changes in deductibles influence the overall cost of premiums, with higher deductibles typically leading to lower premium payments. In Texas, homeowners might encounter various types of deductibles, such as those for tropical storms or hail damage, each with its own application and impact on insurance claims.
Deductibles in homeowners insurance can be flat deductible amounts which would be a fixed dollar amount or a percentage-based deductible which is based on a calculation against your reconstruction value. The percentage-based deductible option has become mandatory for storm damage claims in areas prone to specific natural disasters like hail storms in Texas. Percentage-based deductibles grow in raw dollar amounts as the reconstruction costs of your home grows.
Given the disparity of the frequency of claims for hail damage and just about everything else in Texas, most home insurance providers have allowed homeowners to select a lower deductible for "all other perils" than they do for hail coverage. Understanding the difference between a minimum deductible for wind and hail and a separate deductible for all other perils is vital for Texas homeowners. Each type is calculated differently and applies under various circumstances, affecting coverage and potentially the policyholder's financial responsibility during a claim while also helping mitigate excessive premium costs for homeowners.
When a homeowner like Stephen files a hail claim, the process involves several key steps. This includes assessment by an adjuster, determining eligibility for roof replacement, estimating the cost of repairs, getting the work completed, and paying for the actual cost of damage repaired. The standard deductible is paid directly to your contractor when work is completed. When a covered claim is approved, the homeowners insurance companies will issue a check to you for the "depreciated amount" based on your roof's replacement cost and age. This is used to provide a deposit to your roofer to get the work started.
Once the work is completed, the roofer is expected to provide documentation back to the claims adjuster who will then calculate the remaining amount of money owed in the claim settlement. The homeowner's out-of-pocket costs from the deductible payment will be subtracted from the total amount along with the initial payment that was provided by the insurance company.
Making the deductible payment larger has made it more difficult for contractors to commit fraud and waive your deductible while still making a profit. This is expected to slow down the number of hail claims as homeowners are expected to foot more of the bill now. Time will tell if that strategy actually works.
One major change that the companies have made to homeowners insurance deductible amounts is the change from a traditional 1% minimum deductible for wind and hail damage to a 2% minimum deductible. The percentage-based deductible is often a point of confusion for Texas homeowners. Many Texas homeowners believe that the percentage expected to be paid in the form of a policy deductible is 1% of the claim amount. That is a myth.
A 2% deductible implies that the homeowner is responsible for paying an amount equal to 2% of their home's insured value towards the repair costs before insurance coverage begins. This number is typically significantly larger than what most homeowners might consider. To put some perspective on this number, an average value for a home to be rebuilt in Dallas-Ft Worth is around $375,000. Calculating 2% of that $375,000 amount comes out to $7,500 in responsibility of the homeowner. That can sting a bit. But that's not the only thing that affects how much money you will receive from the homeowners insurance company.
The other part of the equation is whether your covered claim is based at replacement cost or actual cash value. Claim payments based on actual cash value are depreciated based on the age of the roof, and most Texas homeowners will object to a policy with this provision. The insurance providers have given it a fancy name of roof payment schedule in the last few years in an attempt to make it sound more appealing. The roof payment schedule, or the depreciation of the claim amount, will reduce the amount of the claim check when it is fully settled. This concept affects the overall settlement based on the claim basis being subjected to their schedule of depreciation. This requires careful consideration and understanding before you purchase a policy.
For homeowners across Texas, seeking coverage that addresses hail deductibles, roof payment schedules, and other severe weather risks is essential. True Texas Home Insurance offers comprehensive solutions that ensure the lowest possible storm deductibles possible and replacement cost coverage for your roof. It is only available through Insurance For Texans and provides Texans like Stephen with a framework to understand and compare not only coverage limits but different types of homeowners insurance.
Insurance For Texans specializes in crafting customized insurance plans that meet the unique needs of Texas homeowners. By working with our independent insurance agents, homeowners can ensure their policy coverage is tailored to their specific requirements, offering protection against Texas-specific risks.
Stephen's journey through the maze of increasing hail deductibles highlights the critical importance of being well-informed and prepared and working with Texas experts for your coverage. For homeowners across Texas facing similar dilemmas, the solution lies in seeking expert guidance and choosing the right insurance partner.
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