Buying a home will likely be the biggest investment you'll ever make in your life. With that said, it's important to keep your investment safe in case an unfortunate event occurs. Although you can legally own a home without homeowners insurance, chances are your mortgage lender will require you to purchase a policy. Below is a basic overview of homeowners insurance.
HOME INSURANCE TERMINOLOGY
Do the words "deductible" or "premium" make you draw a blank? The following is a brief glossary of terms commonly associated with homeowners insurance:
- A peril is a specific type of damage or loss defined in your insurance policy (such as fire, theft, hail, etc.).
- A premium is the price of coverage for a particular type of peril. Premiums are often set for a specific period of time.
- A claim is a request to the insurance company to be reimbursed for lost or damaged property.
- A deductible is the amount of money you must pay to a loss before any payment is due from your insurance company.
- Replacement cost is the amount of money required to fix or rebuild your home in the event of a disaster.
- Deprecation refers to the decrease in value of your home due to damage or natural wear and tear.
- Actual cash value takes the replacement cost of your property and subtracts deprecation.
Didn't find the term you were looking for? The Texas Department of Insurance provides a comprehensive glossary of home insurance terms to help you understand what's defined in your policy.
TEXAS INSURANCE POLICIES
Unlike most states, Texas has its own brand of insurance policies. The following is a list of home insurance policies offered in Texas:
1. HO-A policy - The HO-A policy is the cheapest policy for which you can apply. It offers coverage for a very limited and specific amount of perils. If you choose this policy, be sure to read the document carefully so you understand exactly what is (and isn't) covered. HO-A policies only offer actual cash value coverage.
2. HO-B policy - The HO-B policy offers coverage for most perils that can affect your property, which are specifically noted on the document. Keep in mind that some Texas insurance companies do not offer HO-B policies.
3. HO-A amended policy - HO-A amended policies offer a middle-ground option between the HO-A policy and the HO-B policy. In other words, you'll get more coverage out of an HO-A amended policy than a standard HO-A policy, but less coverage than an HO-B policy. As with the other two policies, perils covered by HO-A amended policies are specifically defined in the document.
4. HO-C policy - HO-C covers "open perils," meaning that it provides coverage for any type of damage or loss to your property (as long as it isn't specifically excluded in your document). Because of this, HO-C policies tend to be the most expensive of all the policies provided by Texas insurance companies.
Note: HO-A, HO-B and HO-C policies are considered "standardized." This means that each policy must use the same terminology and provide the same coverage, regardless of which insurance provider you choose. The HO-A amended policy, however, is not standardized.
TYPES OF COVERAGE
A typical Texas homeowners insurance policy will provide the following types of coverage:
1. Dwelling Coverage (Coverage A) covers damage affecting the structure of your home. This type of coverage can be purchased as a stand-alone policy (also known as a Dwelling Policy).
2. Other Structure Coverage (Coverage B) covers damage affecting structures not attached to your home, such as a tool shed, guest house or detached garage.
3. Personal Property Coverage (Coverage C) covers damaged or stolen personal belongings in your home, such as jewelry, furniture or home appliances.
4. Loss of Use Coverage (Coverage D) covers your living expenses in the event that your home becomes temporarily uninhabitable. These can include hotel charges, restaurant bills and car storage.
5. Personal Liability Coverage (Coverage E) reimburses you in the event that you are liable for a nonresident who is injured on your property. It also covers damage caused to a nonresident's personal property while on your property.
It's important to note that homeowners insurance policies will vary from person to person, based on the size, age and location of your home, as well as other factors. For more information about Texas homeowners insurance, visit the website for the Texas Department of Insurance.