Are you a Texas homeowner experiencing sticker shock on your insurance bill? You’re not alone.
According to the New York Times, Texas homeowner insurance rates rose by 40% since 2015, significantly higher than the national average of 21%. Extreme weather events, such as Hurricane Nicholas and severe winter storms, are partially to blame. Yet Texas is growing faster than ever before, gaining 230,000 new residents in 2022, even as states like New York and California shrunk. Population growth means insurance companies are taking on an increased risk of future claims, which also drives up rates.
Higher prices can make it tempting to cut back on your insurance or cancel it altogether. That, however, could create a financial disaster if you need to repair or replace your home. Given rising costs and the increased danger of climate-related disasters, what can Texas homeowners do to protect their investments?
- Calculate your flood insurance needs. Most homeowner policies don’t cover floods, but climate change is making flood events more likely. Reviewing disaster calculators and figuring out if you’re at risk is one way to determine how important flood insurance could be for protecting your investment. There are lots of options– check out our disaster calculator rating to see what we recommend.
- Recalculate construction costs regularly. It’s estimated that 2/3 of homes are underinsured and inflation accelerates this issue. If you last calculated your replacement cost a few years ago, particularly pre-pandemic, re-estimate. Raw materials and labor costs have all increased due to continuing supply chain issues, inflation, and a shrinking pool of construction workers. These factors drive up the cost to rebuild homes, particularly in a disaster, when demand is even higher.
- Use Extended Replacement Cost. If you want additional peace of mind in the event of a disaster, purchasing an “extended replacement cost” endorsement, can boost your coverage at a lower cost than increasing your Coverage A (also called Dwelling coverage). Extended replacement cost provides additional coverage, usually 25%, 50%, or even 100% of your Coverage A that only kicks in if you need additional money to rebuild your home.
- Raise your deductible. If you default to a lower deductible, it’s driving up your premiums and the wrong way to think about insurance if you have savings. A low deductible protects you from smaller financial stresses, such as fixing a broken window or not paying more than a few hundred dollars for a big repair. But if you have significant savings or assets, protecting yourself from these small events could cost you more than that protection is worth. Raising your deductibles saves you money on premiums, even if you increase your coverage.
- Don't ignore Coverages B through E. Coverage A gets the bulk of attention for good reason, it’s protecting you from a huge loss—the cost to rebuild your home. But, in a disaster, underinsuring other coverages can be just as dangerous. If you have Accessory Dwelling Units (ADUs) or a detached garage/shed that serve as office space or additional housing, you might need more Coverage B (Other Structures) than your default limits. And if you live in an expensive area, renting somewhere else while your home is rebuilt (and other living costs) can quickly rack up. Making sure you have sufficient Coverage D (also called loss of use or additional living expense) means greater security if you have an extended reconstruction.
Try some of our tips to ensure you aren’t underinsuring your investments, or let Coverage Cat optimize your homeowners insurance for free !
Reviewed by
Max Cho
, Licensed Insurance Broker NPN 20377411