Texas Property Insurance 101 – Do You Know Your Policy’s Deductible?

For those who asked the question about their deductible, most would laugh it off.

‘I? Of course I know there is a deductible. What kind of fool do you take me for?’

Well, be surprised. Many people simply assume they know what deductibles come with their property policies. However, in states like Texas, where natural storms are common, the amount associated with a deductible is not a given for those who live out of state.

Example question – Do you know the answer?

Question: You do not live in Texas, but own real estate there. You have a five percent deductible associated with your $500,000 coverage on your Austin, Texas building. Your building sustained $100,000 worth of damage from a hurricane. How would you explain your 5% deductible in relation to the amount the insurance company will reimburse you?

1. Does the insurance company reimburse you $95,000 (five percent of your claim total)

2. Whether it will reimburse you $75,000 (five percent of the property’s total value)

If number 1 was your answer, you failed the test! The correct answer would be number 2!

Unlike most states, the five percent deductible in Texas refers to the total value of the property, known as TIV.

Those who live in Austin, Dallas, Houston, San Antonio, Irving or any other place in Texas where Mother Nature wreaks her cyclonic devastation are much more familiar with deductibles and relevance to total property values. Therefore, the average Texan would probably have chosen option #2. Due to widespread damage and losses due to violent storms, the insurance companies always charge high deductibles to pool the risk of liability for damages along with the property policy owners.

What about the scenario of bigger losses?

Example of a building deductible in the event of wind damage:

• Your building is valued at $5 million

• There is a five percent deductible

• You are not covered for $250,000!

Example deductible for apartment complex 3 buildings in the event of wind damage:

• Your home includes 4 strips of ten homes, each valued at $500,000 for a total of $2 million

• 1 strip is destroyed by the storm and there is a five percent deductible

• You are not covered for $100,000!

The moral of the story

If there’s anything a homeowner can learn from the above, it’s that they should educate themselves about the contents of your policy and use the services of a qualified, reputable independent insurance company who will steer you in the right direction.