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    Is a Larger Deductible or a Roof Payment Schedule Better for Texans?

    Posted by Ron Wadley on Jan 29, 2024 5:28:53 PM

    Meet Steven from Fort Worth, a proud Texas homeowner who found himself at a crossroads when his homeowners insurance policy was set to renew. He had heard the awful stories about annual premium increases that were coming left and right from every insurance provider in town. But after a recent hailstorm battered a different part of the Metroplex, he began to weigh heavily how we was going to handle his homeowners policy renewal. His insurance agent had already reached out about making changes to his homeowners insurance coverage to try and keep his costs down. After he surveyed the hail damage that was on the news, Steven was faced with the dilemma of trying to determine which types of coverage changes could help lower his insurance costs without setting him up for failure on a claim payout.

    Steven had recently talked with some friends of his that had made changes to their coverage to get the cheapest home insurance policy possible. The friends had made a change to their policy deductible and how the insurance company handled potential claims situations to get that cost down substantially. The problem came when the last hail storm in the fall hail season was deemed a covered claim the homeowners insurance company, but their claim check was the size of a stock tank in the middle of a drought. It was a drop in the giant hole that was the cost of replacing their roof. This is exactly what Steven was trying to avoid.

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    We've found that either by choice or sleight of hand, many Texas homeowners are making significant changes to their standard home insurance policies and that in many cases it creates tragic consequences. As the average home insurance costs have soared, people are looking for relief and there are two major changes that Texans are making that are costing them dearly when filing claims. Before you make changes that can greatly alter your claim situation, let's take a look at the difference between a hail deductible change and allowing a roof payment schedule to be added to your standard insurance policy that includes roof replacement coverage.

    Definition of Deductible and Roof Payment Schedule in Home Insurance

    A deductible in home insurance is the amount you pay out of pocket before your insurance kicks in. For instance, with a $2,500 deductible, you're responsible for the first $2,500 of any covered loss that happens to your home. Most Texans are familiar with homeowners insurance deductibles, so this doesn't come as a surprise. Where some people get confused is how they are paid since roofers have long told homeowners that they don't have to pay them.

    The roof payment schedule, on the other hand, has become a common payout method that is fancy marketing speak to mask that it's an actual cash value claim payment. The amount of the claim payment is based on the roof's age and material, and will reduce the homeowners insurance claim check as the roof gets older. It's vitally important for homeowners like Steven to understand these concepts, as they directly influence the financial outcome of property damage claims.

    Understanding Hail Claims

    In Texas, it seems like natural disasters happen regularly requiring homeowners to file claims against their insurance. Fortunately, the process of filing a hail claim has become streamlined with all of our experience at it. After you file your claim, there will be a conversation with your assigned adjuster and selected roofer to coordinate approval and policy coverage. Once approved, the insurance company will establish the replacement cost basis for your roof. They then typically issue a check to you based on the depreciated amount from that replacement costs while also subtracting your deductible. This is to be used as a downpayment towards the costs of materials to get the work started. Once work is completed by your roofing contractor, you then pay your deductible to them. Then when the roofing contractor submits proof of work to the insurance company they will pay the remainder of the replacement cost in a final check. However, with a roof payment schedule, this final check may not be issued, affecting the overall payout you receive. Which provides the crux of the issue that Stephen is worried about.

    Hail Damage in Texas Is a Larger Deductible or a Roof Payment Schedule Better for Your Wallet?

    Exploring Deductibles in Home Insurance

    Many Texans understand that raising deductible amounts on a policy is a way to lower their homeowners insurance premiums. Since raising your deductibles is accepting more financial risk for a covered home insurance claim, the company rewards you with a lower premium cost. Over the last 24 months, many insurance companies have raised the minimum deductible for wind and hail either statewide or for certain regions of Texas. North Texas and the Coastal regions have the highest percentage deductibles compared to other areas in the state.

    But beware of biting off more than you can chew with higher deductibles for hail claims. For example, choosing between 2% and 3% deductible options can make a notable difference in your annual rates. However, on a $500,000 house you are accepting to pay $15,000 rather than $10,000 since it is 3% of the reconstruction value of the home. Higher deductibles generally lead to lower premiums, but they come at the cost of increased risk on your part.

    The Concept of Roof Payment Schedule

    Most Texans assume that they are purchasing a replacement cost policy where the roof is concerned. But many Texans have been assuming a roof payment schedule on their policy without fully understanding the implications of what that means for them and their home. The insurance companies are determining claim payments based on an estimation of the roof's actual cash value based on a schedule that they dictate in policy documents. It's important to understand the difference between replacement cost coverage and a roof payment schedule.

    If your home's roof is brand new, the difference between replacement cost coverage and a roof payment schedule. However, with each passing year, the amount of coverage that your insurance company will provide to you for hail coverage will decrease by the percentage listed on the schedule. The difference between claim payouts will be about 50% by the time your roof reaches six years of age. While roof payment schedule coverage can be more affordable and suitable for newer roofs, it results in much higher out-of-pocket costs for older roofs.

    Benefits of Choosing a Larger Deductible over Roof Payment Schedule

    It is time to do some math. While Stephen was not crazy about that part, he wanted to get to the bottom of finding a way to save some money on his annual premium for his home. So we broke this down for him using the following set of facts.

    • Reconstruction Value of Home - $437,000
    • Estimated Cost Of Roof Replacement: $27,800
    • Roof Was Replaced Seven Years Ago
    • A 2% Hail Deductible = $8,740
    • A 3% Hail Deductible = $13,110
    • Roof Payment Schedule Depreciation Amount = 57%

    Stephen recognized that choosing both a large hail deductible and the roof payment schedule would be a recipe for disaster. The 2% deductible being subtracted from the estimated replacement cost would leave $19,060 in potential claim payout available to him. The depreciation amount of 57% being applied would leave him with a claim payment check of $8,195.80 to put towards his roof replacement. That doesn't seem like a great idea.

    However, what intrigued Stephen was looking at a 3% deductible and maintaining his replacement cost coverage instead of the actual cash value mechanism that comes with the roof payment schedule. Choosing the 3% deductible would save him about the same amount of monthly premiums as adding the roof payment schedule to his policy. But when it came time to claim, his check would be $14,690. That meant an extra $6,500 back in his pocket. That math made a lot of sense to Stephen.

    How To Get True Texas Home Insurance

    True Texas Home Insurance offers comprehensive coverage tailored for Texas homeowners. We advise against roof payment schedules, emphasizing the importance of making informed decisions that balance premium savings with potential out-of-pocket costs. With hail claims being a frequent occurrence in Texas, choosing the right insurance is vital to protect your home.

    Insurance For Texans specializes in guiding homeowners through the complexities of home insurance. Understanding the importance of roof coverage during hail season is critical, and we're here to ensure you make wise decisions for your home. TRUE Texas Home Insurance is your go-to solution for tailored coverage that meets the unique needs of Texas homeowners.

    Ready to make an informed decision for your Texas home? Click The Button Below To Decode the Best Financial Strategy for Your Roof Claim with TRUE Texas Home Insurance. Let's ensure your home is protected, just like we did for Steven in Fort Worth.


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    Topics: deductible, percentage deductibles, hail, Home Insurance Tips, roofing schedule, TRUE Texas Home Insurance