 There’s been a lot of attention focused on household mold and Texas homeowners insurance policies these days. Many consumers are worried about policy coverage if they suddenly discover there’s a mold problem in their house.
And some insurance companies aren’t writing certain policies because of the recent spate of mold claims in Texas. In fact, Farmers Insurance recently told its Texas agents they could no longer renew the company’s comprehensive HO-B policy as of Dec. 30. This action follows the company's August decision to stop selling HO-Bs to new customers. In both cases, the company cited a big increase in losses because of mold-related claims.
However, many people aren’t aware of the different types of policies available in Texas and how a particular type of coverage might affect claims. Here’s a primer for Texas consumers that will shed some light – and may help protect your home in the future.
What kind of policy do I have?
According to the Texas Department of Insurance (TDI), there are three types of standard homeowners insurance policies in Texas: HO-A, HO-B and HO-C. HO-A is the least expensive, but its actual cash value coverage is very limited. HO-B provides replacement cost coverage for most kinds of damage to your house. Ninety-six percent of Texas homeowners purchase this type of coverage. Finally, HO-C is the most expensive and comprehensive coverage. This type of policy covers everything except specifically excluded events.
Here’s how losses are calculated for HO-A and HO-B policies. Say a family of four purchased a 10-year-old home for $200,000. Subtract $20,000 for land cost and you’re left with $180,000 for the structure. Multiply that times 60% to figure the approximate value of the contents of the house.
If the home burns down and the homeowner has an HO-B policy, they’d receive the full $180,000, providing the home is insured for the correct replacement value. In terms of contents, the homeowner must prove the contents would cost $108,000 to replace before the insurance company would pay the full $108,000. The important thing to remember is that with an HO-B policy, coverage is replacement cost.
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Therefore, if you have a fire loss, the homeowner would receive a depreciated value of the cost of repair. If the home is completely repaired within a certain time period, the homeowner receives the balance of the cost to replace the damages up to the policy limits.
With an HO-A policy, the coverage is depreciated, not replacement cost. The age of the home is considered, including the last time you replaced the carpet or roof or remodeled or updated the home.
For example, if the carpet is original, the insurance may not pay for any of it because of its age, as well as the wear and tear of the carpet. Everything from the wallpaper to the clothes in the closet is depreciated. As you might imagine, the difference between what the homeowner could receive after depreciation could be considerable with this type of policy.
Additionally, the following is covered by an HO-B, but not an HO-A:
- Additional Living Expense (ALE). If damage, such as mold, requires a family to move to temporary housing while repairs are being made for a claim, this covers it. The insurance company will pay for the cost of food and lodging up to 20% of the cost of the structure until the family can move back home.
- Water damage, including slab damage
- Any falling objects, such as trees, etc.
- Collapse of building
- Damage from weight of snow
- Tips for homeowners
The bottom line is that consumers should use common sense when choosing homeowners insurance. This is definitely one of those areas in which cheapest is almost certainly not the best deal. Your home is an investment – probably the biggest investment you’ll ever make – and it’s well worth it to get the coverage you need, just in case.
But just as important as having adequate coverage, it’s equally crucial to take care of things immediately when they go awry in your home. This includes detecting and stopping water leaks at an early stage, before they create an environment where mold can thrive, and immediately drying out any building materials that have become damp or wet.
With the proper coverage and a watchful homeowner’s attitude, your home will continue to be a great investment that will only grow with time.
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