Homeowners insurance pays to repair or replace your house and personal property if they are damaged or destroyed by an event or occurrence covered by your policy. These events or occurrences are called "covered losses".

Note: An insurance policy is a contract between you and your insurance company. Read it carefully to understand exactly what it covers and the dollar limit of the coverage. You should also understand your rights. Texas has a Consumer Bill of Rights for homeowners and renters insurance. Homeowner policies are all very different, be sure and ask your agent about what type of policy you have.

Texas Homeowners Policies

Most homeowners policies in Texas include the following coverages:

-Dwelling pays if your house is damaged or destroyed by a covered loss.

-Personal property pays if the items in your house (such as furniture, clothing, and appliances) are damaged, stolen, or destroyed.

-Other structures pays to repair or rebuild structures not attached to your house, such as detached garages, storage sheds, and fences.

-Loss of use pays your additional living expenses (housing, food, and other essential expenses) if you must temporarily move because of damage to your house from a covered loss. Your policy will pay either a percentage of the amount of your dwelling coverage (typically 10 to 20 percent) or for a specific period after the loss (such as 24 months).

-Personal liability pays to defend you in court against lawsuits and provides coverage if you are found legally responsible for someone elses injury or property damage.

-Medical payments pays the medical bills of people hurt on your property. It might also pay for some injuries that happen away from your home, such as your dog biting someone at the park. A basic homeowners policy pays $500 in medical bills, but you may buy up to $5,000 in medical payments coverage.

Types of Policies

Insurance companies in Texas may sell several types of policies. If a company offers you a policy with less coverage than you would like, ask if other policies are available. You may also be able to buy additional coverage by adding endorsements to your policy.

The two types of policies sold in Texas are:

-All-risk policies (also known as a comprehensive coverage or open perils coverage). These policies offer you broad protection and cover all causes of loss unless the policy specifically excludes them.

-Named perils policies (also known as specified perils coverage). These policies offer narrower protection than an all-risk policy and cover only the causes of loss specifically named in the policy.

Note about replacement cost and actual cash value:

-Replacement cost is what you would pay to rebuild or repair your home, based on current construction costs. Replacement cost is different from market value and does not include the value of your land. Ask your company if you are not sure how much it would cost to rebuild your house.

-Actual cash value is what you would pay to rebuild or replace your property minus depreciation. Depreciation is a decrease in value due to wear and tear or age. If your home is destroyed and you only have actual cash value coverage, you may not be able to completely rebuild.

Policy Coverages:

Companies may exclude coverage for certain losses. Even the most comprehensive all-risk policy will exclude certain types of damage.

The following chart shows the most common types of losses covered or excluded from a homeowners policy:

Most Policies Cover Losses Caused by:

-Fire and lightning

-Sudden and accidental damage by smoke

-Explosion

-Theft

-Vandalism and malicious mischief

-Riot and civil commotion

-Aircraft and vehicles

-Windstorm, hurricane, and hail (this coverage may be excluded if you live on the Gulf Coast)

-Sudden and accidental water damage

Most Policies Do Not Cover Losses Caused by:

-Flooding

-Earthquakes

-Termites, insects, rats, or mice

-Freezing pipes while your house is unoccupied (unless you turned off the water or heated the building)

-Losses if your house is vacant for the number of days specified by your policy

-Wear and tear or maintenance

-Wind or hail damage to trees and shrubs

-Mold, except what is necessary to repair or replace property damage caused by a covered water loss

-Water damage resulting from continuous and repeated seepage

Policy Dollar Limits

A policy dollar limit is the maximum amount your insurance company is required to pay if your house is destroyed. The Declarations Page at the front of your policy shows your policy dollar limit. Review your limits to ensure you have enough coverage to rebuild if your house is damaged or destroyed. Talk with your agent or a company representative if you have any questions about your insurance limits.

To receive full payment (minus your deductible) for a partial loss (such as a hail-damaged roof) most companies require you to insure your house for at least 80 percent of its replacement cost. If you insure your house for less than 80 percent of the full replacement cost, the insurance company will only pay a portion of the loss. Some companies might require you to insure your house for 100 percent of its replacement cost.

Coverage for Your Personal Property

Homeowners policies provide coverage for your personal property (such as furniture, clothing, and household electronics) as a percentage of the amount of your dwelling coverage limits. For example, if your company insures your personal property at 40 percent of your dwelling coverage and your house is insured for $100,000, your items are insured for up to $40,000. You might be able to buy more coverage by paying a higher premium.

Homeowners policies usually cap the coverage amounts for certain types of personal property, such as jewelry and art. Tell your agent or company about any special items you have that you would like to insure. You may be able to buy additional coverage for these items for an extra premium.

Typically a homeowners policy will pay only the actual cash value of damaged, stolen, or destroyed personal property.

Inventory Your Property

Many people learn after a fire or storm that they did not have enough personal property coverage. Making a written inventory will help you decide how much insurance you need. It will also simplify claims.

Your inventory should list each item, its purchase date, value, and serial number. Photograph or videotape each room, including closets, open drawers, storage buildings, and garage. Keep the inventory and receipts for major items in a fireproof place or another location.

Other Types of Residential Property Policies

-Renters insurance. Landlord insurance does not cover the personal property of the renter. Renters insurance covers your belongings, provides liability protection, and pays additional living expenses if a fire or other event stated in your policy forces you to move temporarily.

-Condominium insurance. Condominium insurance covers your belongings, provides liability protection, and pays additional living expenses. It also covers damage to improvements, additions, and alterations to the condo.

-Townhouse insurance. Townhouses may be insured by either an individual homeowners policy or an association master policy. If a townhouse is owner-occupied and the townhouse association does not have a master policy on the building, you can purchase a homeowners policy on your individual unit. If the association has a master policy, you should get a Texas tenant homeowners policy to insure your personal property.

Flood Insurance

Homeowners policies do not cover flood damage. To protect yourself from losses caused by most flooding, you may buy a separate flood insurance policy, see our flood quote section.

Earthquake Insurance:

Insurance companies offer separate policies that cover damages caused by earthquakes. The cost is low because earthquakes are rare in Texas.

Extra Coverage (Endorsements)

If you want more coverage than the policy offers, you might be able to add an endorsement to your policy for an extra premium.

Some of the most common endorsements YOU CAN REQUEST expand or increase coverage for jewelry, fine arts, or camera equipment. Other common endorsements provide coverage for damage originally excluded by the policy.

The following are common endorsements you can consider adding to your policy:

-Backup of sewers or drains. Pays for damage caused by sewer or drain backup.

-Damage to foundation or slabs. Pays to repair a foundation or slab up to certain limits.

-Extended or additional dwelling replacement coverage. Pays up to a certain amount if your policy does not pay enough to rebuild your home.

-Law or ordinance coverage. Pays if repair costs are higher because of local building codes or ordinances.

-Mold remediation. Pays for mold remediation up to a certain amount.

-Replacement cost-dwelling. Pays replacement cost after you repair or replace your property.

-Replacement cost-personal property. Pays replacement cost after you repair or replace your property.

-Water damage from a plumbing, heating, or air conditioning system. Pays for sudden and accidental water damage. Most policies do not provide coverage for continuous and repeated water damage.

Personal Umbrella Liability Insurance:

If you have assets to protect and want more liability coverage than a homeowners policy provides, you can buy a separate umbrella policy. Make sure the agent or company fully explains the coverage because policies are different from company to company.

Shopping for Homeowners Insurance:

Rates and coverage vary from company to company, so it is a good idea to shop around. The following tips can help you find the best deal for your money:

-Consider higher deductibles. Your deductible is the amount you must pay before the insurance company will pay. Higher deductibles will lower your premium, but remember that you will have to pay more out of your own pocket if you have a claim.

-Ask your agent whether you qualify for discounts. Insurance companies may offer policy discounts that will lower your premium.

-When getting a price quote or applying for insurance, answer questions truthfully. Wrong information could cause you to get an incorrect price quote or could lead to a denial or cancellation of coverage.

-Consider factors other than price, including the financial rate of a company, complaint index, and license status. The financial rating indicates financial strength and stability, and the complaint index is an indication of its customer service record. Buy only from licensed companies and agents. It is against the law to sell insurance without a license in Texas. Learn more about a company, including its licenses status, complaint history, and financial rating from an independent rating organization by calling the TDI Consumer Help Line at 1-800-252-3439 or 512-463-6515 in Austin or by visiting the TDI website at www.tdi.texas.gov.

-Consider whether your property coverage limits are high enough to replace your house and personal property if they are damaged or destroyed. You can increase property and liability coverages if you do not think they are high enough.

Actual Cash Value vs. Replacement Cost Coverage in Homeowners Insurance

How it Works

Homeowners insurance policies offer actual cash value or replacement cost coverage to replace your damaged, stolen, or destroyed personal property. Replacement cost is what you would pay for the item at the present cost. Actual cash value is what you would pay for a similar item at the present cost cost minus depreciation (replacement cost minus depreciation). Depreciation is a decrease in value due to wear and tear or age.

Claim Scenario:

Your home and some furnishings were damaged during a recent wildfire. You made a claim to your insurance company and have met your deductible. Now you are looking at replacing the damaged furnishings. Last year, you bought a sofa for your living room for $2,000. The amount of money you will receive to replace your sofa depends on the type of coverage you have.

-If you have actual cash value coverage, the company might pay you $1,500 because that is the actual cash value of the sofa today (replacement cost minus depreciation).

-If you have replacement cost coverage, the company will pay $2,100 because that is what it would cost to buy a similar sofa today.

Note: If you have replacement cost coverage, most insurance companies will give you the actual cash value of an item and require you to submit a receipt for the new item before paying you the remainder.

Example:

-With actual cash value coverage, you will receive a payment from the insurance company for $1,500.

-With replacement cost coverage, you will first receive a payment from the insurance company for $1,500.

When you submit your receipt for the sofa, the company will pay for the difference between $1,500 and the amount you paid to replace the sofa up to $2,100.

$2,100 = Amount of the receipt for your new sofa

$1,500 = Actual cash value of the sofa and amount sent to you by the company after you filed a claim

$600 = Amount the company will send you after you submit a receipt for $2,100