FAQs: Property Insurance

Agents share the 10 most asked property insurance questions.

Published March 20, 2023

Buying a home has become an American milestone. Our homes are our solace from the outside world, but they also provide a way to build equity and, in some cases, gain preferential tax treatment.

Property insurance is in place to help you protect that investment, but it can be overwhelming to determine what your policy actually covers, the amount of coverage you need, and how to compare policies.

Texas Farm Bureau Insurance Agents weigh in on 10 of policyholders’ most common property insurance FAQs.

Q: Is property insurance required for homeowners in Texas?

A: You are not required by law to carry a property insurance policy. But, if you’re still paying on a mortgage, your lender will most likely require you to have it. Keep in mind: Property insurance helps protect your home, assets, and even provides liability coverage. So, it’s worth looking into, even if it’s not legally required.

Q: What types of property insurance are there?

A: One of the good things about a property insurance policy is that it’s customizable. This allows you to get what you really need and take off what you don’t. Often, you’ll find these six coverages combined into a property insurance policy in Texas:

Dwelling: This protects your home if it’s damaged or destroyed by an event or circumstance that’s covered by your homeowners policy.
Loss of use: This pays for additional living expenses if you have to temporarily move out of your home after an accident.
Personal property: This covers your clothing and furniture if they’re destroyed, stolen, or damaged.
Other structures: Typically, this coverage repairs or replaces storage sheds, fences on your property, or a detached garage.
Personal liability: This coverage helps financially protect you should an accident happen inside or outside your home. If you’re legally responsible for injuring someone, such as in a car accident, it covers their medical bills and lost wages. It also kicks in if you’re found responsible for damaging someone’s property.
Medical payments: This coverage pays for medical bills if someone other than your immediate family is hurt while on your property.

Q: How are rates calculated for property insurance?

A: Several factors determine the cost of your property insurance premium, and they vary among insurance companies. Here are three of the most common factors that go into determining a property insurance premium rate:

Location. You might face a higher premium if you live in an area prone to storms or crime.
Claims history. If you’ve filed several claims in the past, your premium may be more expensive.
Age and Condition. Older homes sometimes carry more risk. The older the home, the more likely it is to need repairs.

Q: What is my policy’s dollar limit? What does that mean?

A: Property insurance is a great safety net, but every policy has a dollar limit — the amount the insurance company is willing to pay out. That’s why it’s essential to get the right amount of coverage. Your Texas Farm Bureau Insurance Agent can help you determine how much coverage you need.

Q: How much property insurance do I need?

A: No universal magic number fits every policyholder’s needs. In general, make sure you have enough coverage should a disaster strike. Look at the coverage details to ensure the policy will pay out enough to rebuild your home, replace the personal belongings inside, and cover displacement costs if you’re unable to live in your home.

Q: What is the difference between replacement cost and actual cash value?

A: Most property insurance policies offer either actual cash value or replacement cost coverage. If you’re confused about the two coverages, you’re not alone.

Replacement cost coverage is what you want for full protection. With this coverage, your home and personal property will be replaced or repaired at current values, subject to your deductible and up to your policy limit. For example, if a notorious Texas hailstorm leaves your 10-year-old roof with extensive damage, replacement cost coverage would pay for a new roof at the current market value, provided you’re up-to-date on your premium payments. If a new roof costs $11,000 and your deductible is $2,000, your policy would pay out $9,000 once your deductible is paid.

With actual cash value coverage, you’ll receive the replacement cost minus depreciation, which is a decrease in value due to age and wear. It’s possible that you’d have to pay some out-of-pocket expenses with this type of coverage. For example, if the actual cash value of that decade-old roof is $7,000, the insurance company would pay $5,000 after you pay your $2,000 deductible. That means you’d pay $6,000 out of pocket instead of $2,000 with a replacement cost coverage policy.

Q: How much should my deductible be for my property insurance policy?

A: It might be tempting to go with a policy with a high deductible. But, depending on your financial situation, this can be a risky move. For one, you want to make sure you have a deductible that you can afford. Also, the loss amount must exceed your deductible for coverage to kick in. For example, if you have a $5,000 homeowners deductible and roof damage from a recent storm totaling $3,500, you’d have to pay out of pocket for the expenses. Generally, purchasing a policy with a deductible equal to at least 1% of your home’s value (e.g., a $2,500 deductible on a $250,000 home) is advisable.

Q: What type of damage will my property insurance cover?

A: Your policy will list types of covered losses, which may include fire, lightning, and vandalism. (If you live along the coast, you may be required to purchase a windstorm policy issued by the Texas Windstorm Insurance Association or flood insurance issued by the Federal Emergency Management Agency.) Property insurance will cover your personal property inside the house if it’s stolen or damaged, but it will not pay for termite damage or natural wear and tear. Learn more about common types of property claims in Texas.

Q: Will my property insurance cover flood damage?

A: No, your property insurance policy will not cover flooding damage. If you’re still paying on your mortgage, your lender may require you to have flood insurance if your home is located in a designated flood zone. Call 800.427.4661 for information about flood insurance. Keep in mind: It takes at least 30 days for most flood insurance policies to kick in. Don’t wait until there’s an impending storm to buy flood coverage.

Q: Should I package my home and auto insurance with the same insurance carrier?

A: While this decision is up to the policyholder, there can be benefits to bundling your home and auto insurance. For one, depending on the insurance company, you’ll likely get a discount. Also, bundling makes things easier. Should you need to file a claim, you know how to get in touch with your Agent. Another plus? Filing a claim should be a more streamlined process.