January 23, 2006

Last month, the Texas Coalition for Affordable Insurance Solutions launched a consumer education campaign to encourage Texans take advantage of the growing insurance marketplace by shopping around for home and auto insurance.  Insurance reforms designed to promote competition in the homeowners and auto insurance marketplace are working and Texans have more reason to shop for insurance than ever before.

TCAIS is committed to providing information to help Texans make wise decisions about their insurance needs.  This month, we continue with some insurance basics.

The following are some questions and answers to help you understand your policy so when you shop, you'll get best insurance value to suit your needs.

How can I be sure I have enough homeowners insurance?

There are three ways to insure the structure of your home:

1. "Replacement Cost" is insurance that pays the policyholder the cost of replacing damaged property without deduction for depreciation, but limited to a maximum amount.
2. "Extended Replacement Cost" policies cover costs up to a certain percentage over the maximum limit (usually 20%).  This may give you protection against things such as sudden increases in construction costs.
3. "Actual Cash Value" covers the cost to replace your home minus depreciation costs for age and use.  So for example, if the life expectancy of your roof is 20 years and your roof is 15 years old, the cost to replace it in today's market is going to be much higher than its actual cash value.

How much will it cost to rebuild my home?

You should consider the factors that will determine the cost to rebuild your house such as construction costs, square footage, the type of exterior wall construction, and special features like arched windows and fireplaces. 

For a rough estimate of how much it would cost to rebuild your home, multiply the total square footage of the house by the local building costs per square foot. (You can find out building rates by contacting the local building association, a reputable builder or your insurance company or agent.)  This will provide an estimate but should not replace annual coverage reviews of your policy. 

Checking the latest building codes in your community is also important in making sure you have enough coverage.  If your home is severely damaged, you might have to rebuild it to comply with minimum building code standards, which may require a change of design or building materials and that could increase costs.

Finally, most lenders require you to buy enough insurance to cover the amount of your mortgage. So you'll need to make sure it's also enough to cover the cost of rebuilding.

In next month's Insider: "How can I compare different policies and levels of coverage?"

Sincerely,
Beaman Floyd
Executive Director, TCAIS