Tag Archives: Flood insurance

Homeowners and Flood Insurance

Protecting your investment in your home is an ongoing process. Whether you are adding a new roof, painting or buying appropriate insurance; there will be a significant cost to protecting your home. With flooding, hurricanes, and high wind in the Houston area; insurance becomes even more important.

Buying a home

When you are buying a home in Texas you will normally pay for an option period during which you can back out of the contract without providing a reason for a period of what is normally 7 to 10 days. Besides inspections, you will want to obtain quotes for your homeowners and flood insurance policy. Your insurance agent has information about prior claims on the house which might alert you to an issue. In addition, your agent can confirm whether flood insurance is required (whether the home is in a flood plain) and the cost. If it is required, it is an indication that over a long period, you may have to deal with water in your home or on your property. In addition, over the coming years, the federal government will be raising rates on required flood insurance significantly in trying to match their costs with your premiums. If you are not in a flood plain, flood insurance is not expensive and premiums are not projected to substantially rise in the near term.

Renewing Homeowners Insurance

Your homeowners insurance covers your home, out buildings, and personal property. It will also provide rental and other reimbursement if you have to live at another location while your home is being repaired or replaced. And, it provides a basic level of liability insurance in case you are sued by someone who injures themselves in your home.

Amount of Coverage – Since your coverage does not cover your land, the amount will be less than the total amount for which you home would appraise. Your agent can provide building costs per square foot based on your homes features (brick or wood, custom or not, number of bathrooms, number of stories, etc.) Because your repairs or rebuilding may cost more than the standard figures (for instance, after a hurricane when builders and materials are in short supply), you may want to consider adding replacement cost coverage.

Protecting Your Home

Protecting Your Home

Other Coverages – You will want to know what the policy covers and what it does not cover.  Besides not covering for flooding, there are other matters which may not be covered, but could be added to the policy. For instance, water damage caused by leaking appliances or backups, or mold.

Scheduled Items – Different insurance companies will have different requirements for scheduled items. For instance, jewelry above a certain amount, or certain collections believed to be worth more than a certain amount; may have to be scheduled and have an additional premium. This should be discussed with your agent.

Deductible – The more risk you are willing to assume, the cheaper the policy will be. You take on more risk by increasing the deductible. And, different categories of deductible can apply to different coverages. For instance, wind and hail damage may have a different deductible than other coverages. If you have damage to your home that costs $15,000 to repair (and you are paying for a replacement cost rider), and you have a $5,000 deductible. The insurance company will pay only $10,000 of the cost.

Credits and Discounts – Some insurance companies will reduce your premium if you use the same insurance company for your home and auto (and possibly other insurance.) In addition, many companies provide discounts if your home is monitored by a security company.

Shopping Around – Periodically, you will want to compare rates at different insurance companies. Some agents are independent agents representing more than one company. In theory, these agents can do some of the comparing for you. However, many of those agents do not represent a broad enough range of companies. The State of Texas offers information about insurance and an online tool to compare policy coverages at http://www.opic.state.tx.us/residential-property/compare-policy-coverages/homeowners. And, insure.com at http://www.insure.com/home-insurance/  offers information on insurance and provides links to obtain quotes.

And, one last thing, it would be beneficial if you could document your home and its contents with photos, video and receipts for the day you do have a claim. To do this right requires you to spend some time being somewhat uncomfortable reading unfamiliar information and a having a good insurance agent. It is not the way I want to spend several hours every year. However, when the next insurance bill arrives or the next hurricane hits, you will be glad you did. Good luck.

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Inspections and the Option Period

At Home

In Texas, the standard contract to purchase a home gives the buyer a choice to purchase the home in its present condition (“as is”) or purchase in its present condition, except for specific items the seller will repair. Unless there is something specific known at the time of the offer, most buyers mark the “as is” box.

The contract also includes an optional option period. During the option period, the buyer has an opportunity to discuss the potential home with an insurance agent and have the home inspected and tested. Prior to the end of the option period, the buyer will generally propose an amendment to the contract as a result of the information gathered after the contract was executed. And, a new round of negotiations occurs prior to the end of the option period. If the buyer is not satisfied with the seller’s willingness to resolve issues, the buyer can walk away and still receive the earnest money deposit.

From the insurance agent, pricing for homeowners and flood insurance should be obtained. In many parts of Houston, a flood plain elevation certificate will have to be obtained to price the flood insurance. An elevation certificate can be produced by a surveyor if the sellers do not have one. A CLUE report can also be obtained by the insurance agent summarizing prior damage claims on the home. Flood insurance pricing and prior claims are the two key pieces of information needed during the option period.

One or more inspectors should evaluate and test the property. The most important issues for the inspectors in the Houston area are:

Wood Destroying Insects – Most homes of any age and a few new ones will have been exposed to termites and other wood destroying insects. Ensuring the infestation is not active is key.

Foundations – Most of Texas for over 100 miles from the coast is a build-up of sand and dirt. As a result, foundations are not built on rock and after a period the foundations must be repaired. In general, the older the home, the more likely the foundation will need repair or have been repaired in the past.

Drainage – Most Houston homes need to drain from the back to the front and will need a path or drainage system for that to occur. Poor drainage can lead to wood rot, landscape issues and mold issues.

Electrical and wiring – Evaluating whether the electrical system and wiring are working properly, are adequate for the buyer’s needs and are up to date are major concerns as issues can lead to fire hazards.

Under slab plumbing – In homes built before the mid-1970s, cast iron pipe may have been used. The pipes should be inspected for blockage and leaks. The cast iron pipe will likely have to be replaced at some point.

Stucco – Because of the humidity and wetness in the Houston area, stucco should always be tested and inspected for leaks and water penetration.

Other – Roof age and condition, and adequacy of heating and air conditioning equipment are areas of concern.

In selecting an inspector or inspectors, each of these areas should be addressed. Once the buyer knows all the issues, determining a final negotiating stance during the option period can be finalized.