Homeowners should balance insurance cost, coverage

04:21 PM EDT on Monday, June 26, 2006

By PAMELA YIP / The Dallas Morning News

In most parts of the country, homeowners insurance is boring. But for Texans, who pay the highest rates in the nation, the topic ignites consumers' passions and is even an issue in the governor's race.

Soaring claims over mold and water damage a few years ago drove some companies out of the state, before reform laws brought them back. Today, the industry battles allegations of overcharging amid fears of more powerful hurricanes.

"Make sure you're adequately covered, and no more do we know this than at this time of year," said Rod Bordelon, Texas' public insurance counsel, who represents consumers before the Texas Department of Insurance.

BRIAN STAUFFER/Special to DMN

We're still in the middle of the tornado, thunderstorm and hailstorm season, and tropical storms can reach all the way to North Texas. That makes it a good time to do a checkup on your insurance policy.

The good news is it's never been easier to compare homeowners policies. Homeowners can get a wealth of information by calling the Texas insurance department's toll-free consumer help line at 1-800-252-3439 or by visiting the agency's Web site at www.tdi.state.tx.us.

The resources let you compare prices across dozens of firms and put your data on a list for insurers who want to compete for your business. The state also lists independent agents in your area who can find the best policy from multiple insurers.

The bad news is, homeowners insurance is one of the most complicated products any consumer can buy. The cost of a homeowners policy is driven by issues such as personal liability coverage, the value of the contents of your home, deductibles you pay, the risk of some of your home's features, such as a swimming pool, and much more.

And cost has to be weighed against issues such as the financial strength of the company to handle disasters (independent ratings agencies provide an objective comparison) and how willing the insurer is to pay a claim when you have one (the state's complaint index can give an indication).

It's a complicated issue, but here is a simple guide to shopping for homeowners insurance.

Types of coverage

First, let's look at what features you want in a homeowners policy.

It's a good idea to purchase "replacement cost coverage" vs. "actual cash value coverage." Replacement cost coverage pays for all necessary expenses involved with repairing or rebuilding damaged property, minus any deductible.

Actual cash value coverage, on the other hand, pays less than replacement cost coverage because it factors in depreciation.

Your home may be worth $100,000 today, but if it's damaged or destroyed 10 years from now, repair and replacement costs could be considerably higher due to inflation.

To understand your replacement costs, take a comprehensive inventory of your home so that you have a record of your personal belongings. Store a copy of this list in a safe place. Experts recommend also making a photographic or video record.

Check the coverage limits on personal items, such as jewelry, silverware, furs and computer equipment. If the limits are too low, consider buying a special personal property "endorsement" or "floater." An endorsement is an addition to your policy, and a floater insures valuable items separately.

Make sure you know what events your policy covers.

"Insurance companies have been hollowing out policies," said Birny Birnbaum, executive director of the Center for Economic Justice in Austin. "Find out what coverages are in the policy and ask what kinds of coverages are missing that used to be there or are available in a different policy."

Mold coverage — or lack thereof — is an example, said Alex Winslow, executive director of Texas Watch.

"Most policies are not covering mold any longer," he said. "If there's coverage for mold, it's very, very expensive."

You might also have to shop separately for flood insurance. A standard homeowners policy doesn't cover flooding.

To determine if you need flood insurance, ask your insurance agent, mortgage company or neighbors about the flood history in your area. If there's potential for flooding, you should consider purchasing a policy that covers the structure and your personal belongings.

You can buy flood insurance through your agent from a company that's under contract with the Federal Insurance Administration.

What affects pricing

Now let's talk about costs. Factors that affect your insurance premium include:

• The age and condition of your home. Older homes and homes in poor condition generally are more expensive to insure. Insurance companies may refuse to insure homes in poor condition, but they can't deny coverage solely because of a home's age or value.

• Your home's replacement cost. Since your policy will pay to rebuild your home if it's destroyed by a covered loss, premiums are more expensive for homes with a high replacement cost.

• Where you live. Premiums probably will be higher for homes in areas with a high frequency of storms, such as tornados or hailstorms, or with a high incidence of theft.

• Your credit score. Companies are checking your credit score when deciding whether to sell you a policy and what to charge you. However, a company can't refuse to sell you a policy, or cancel or refuse to renew your policy solely on the basis of your credit. The state's Web site tells which companies use credit information.

• Your claims history. Companies will charge more if you've filed claims in the past. That's got many policyholders spooked, said Mr. Birnbaum of the Center for Economic Justice.

"Consumers are afraid to file claims because they're afraid they'll get nonrenewed or they're afraid their rates are going to be jacked up," he said.

To lower your costs, take advantage of every break you can get by asking about discounts.

You may pay less for insurance if your home has an impact-resistant roof, home security devices, fire and smoke-alarm systems, or highly rated fire protection services.

"For so many years, it has not been something that people shop for," said Jerry Johns, president of Southwestern Insurance Information Service in Austin, a trade group. "They simply stay with the same company, and if they stay with the company, they won't talk to the agent about the discounts."

Also, choose the highest deductible you can afford. Your deductible is the amount you must pay out of your pocket before your insurance company pays. Higher deductibles will lower your premium.

Where to shop

It's crucial that you shop around.

Two good online resources that compare policies are those of the Texas Insurance Department and Mr. Bordelon's office — the Office of Public Insurance Counsel.

Using an independent insurance agent, who represents several insurance companies, will also save you lots of time and legwork.

"This is a very, very competitive market, probably one of the most competitive in the country," Mr. Johns said.

Ask several companies and agents for price quotes. When comparing rates, make sure they're for the same coverages.

Buy only from licensed companies and agents. Again, the state can tell you whether a company or agent is licensed.

Consumer advocates aren't happy with the state of Texas homeowners insurance. But even they say that throwing up your hands is the wrong reaction.

"Many consumers in Texas are underinsured for homeowners, because the premiums are so high," said Mr. Winslow of Texas Watch. "Even if you have to pay a little bit more, I would recommend that you buy a policy that is adequate for your needs."

Here are some resources on how to check out insurance coverage for your home, auto, life and health:

HOMEOWNERS INSURANCE

• The Texas Department of Insurance's price comparison guide is at www.tdi.state.tx.us /consumer/txshoph.html.

To use this guide, click on the area where you live. You'll see a list of companies and annual premiums below such categories as "Homeowner 1," "Homeowner 2," "Homeowner 3," etc. Those headings correspond to specific homeowner profiles created by the agency. The homeowner profiles may not match your situation exactly, but they provide a way to compare prices. You can also call 1-800-252-3439.

• The Office of Public Insurance Counsel, which represents consumers before the Texas Insurance Department, has a coverage comparison guide at www.opic.state.tx.us/hoic.php.

• The Texas Insurance Department also helps homeowners shop for insurance at 1-866-695-6873 and at www.helpinsure.com. You sign up and make information about your home available to insurance companies. The information is given to insurance companies who then contact you to bid for your business.

• To check a company's financial strength rating, go to www.ambest.com.

• To find an independent insurance agent, go to the Web site of the Independent Insurance Agents of Texas at www.iiat.org/pub/index_pub.asp and click on "Find an Agent."

AUTO INSURANCE

To view the Texas Insurance Department's auto insurance price comparison guide, go to www.tdi.state.tx.us/consumer/ rgauto.html.

It is similar to the home insurance guide, in which you click on the area where you live and view annual premiums under different driver profiles.

LIFE INSURANCE

The Texas Insurance Department's life insurance guide is at www.tdi.state.tx.us /consumer/life.html.

Life insurance is more difficult to compare because there are many variations in policies. One major type is term insurance, which is in effect as long as you pay the monthly premiums.

Another is permanent or whole life insurance, in which you pay higher premiums that are invested and maintain their value until you cash out the policy or your survivors get a payout upon your death.

The state's site doesn't compare prices. Company sites do, but they require you to enter your telephone number and address, which means you'll hear from an agent.

HEALTH INSURANCE

Texas' Web site, www.texashealthoptions.com, gives you the basics of how to buy health insurance. To compare quotes from different companies, go to ehealthinsurance.com.

SOURCE: Dallas Morning News research