The Impact That Hurricane Katrina Has Had On The Insurance Market, And Explain How This Storm Has Affected Peopleâs Attitudes Toward Insurance

Table of Contents

The Impact Of Hurricane Katrina On The Insurance Market 1

1.1Introduction. 1

1.2 Research Aims And Objectives. 1

  1. Literature Review.. 2

2.1 Home Insurances Rates. 2

2.2 Pre-Katrina Insurance Premiums. 3

2.3 Higher Insurance Rate. 3

  1. Uniqueness Of Hurricane Katrina And Insurance Coverage. 4

3.1Severity And Frequency. 4

3.2 FEMA.. 4

3.3 Doctrine Of Efficient Proximate Cause. 5

3.4 Types Of Exclusion In Reference To Hurricane Katrina. 9

3.4.1Extraordinary hazards. 9

3.4.2 Moral hazard- confluence of perils. 10

3.4.3Moral hazard. 10

3.5 Conditions. 11

  1. Flood Risk Mitigation. 11

4.1 Elevating the House. 11

4.2 Relocating The House Less Flood Prone Areas As Compared To The Flood Prone Area. 12

4.3 Raising the Household Utilities. 12

4.4 Controlling Or Channeling The. 12

  1.  Did Some People Go And Buy More Insurance?. 12

5.1 Insurance Companies Waived Hurricane Deductibles And Insurance Policies Uptake. 12

5.2 Low Insurance Coverage For The Renters. 13

5.3 Decline in insurance purchase. 13

  1. Impact of The Hurricane Katrina On The Insurance Market 14
  2. Conclusion. 14
  3. References. 15

Appendix 1: Homeowners Insurance policy information. 16

Texas Homeowners Policies. 17

Types of Policies. 17

Policy Coverages. 18

Policy Dollar Limits. 19

Coverage for Your Personal Property. 20

Other Types Of Residential Property Policies. 20

Other Types of Insurance You Might Need. 21

The Impact Of Hurricane Katrina On The Insurance Market

1.1Introduction

Hurricane Katrina was among the most devastation natural phenomena in this century. While the economic impact of the disaster was not quantifiable, many insurance companies experienced the most difficult times, as the number of homeowners seeking compensation was higher than they had projected.

Insurance companies profit when an insured risk event does not occur and there is no or few claims. However, after a disaster such as hurricane Katrina strikes, the company has to contend with the home and property owners whose claims come at the same time.  While the frequency of hurricanes is low, it is clear that the devastations or the magnitude of destruction cannot be quantifiable making estimations the only way to determine the amount of compensations to make.  This paper seeks to analyze the impact of hurricane Katrina on the insurance companies and the general attitude of the people towards insurance.

1.2 Research Aims And Objectives

The aim of this research is to analyze how hurricane Katrina affects the insurance market and analyze how the community responds to insurance after the disaster. On the other hand, the objectives of this study are to analyze:

  1. The uptake of insurance products and services after hurricane Katrina
  2. The cost of disaster insurance products before and after hurricane Katrina
  3. The regulations that shaped the insurance industry after hurricane Katrina
  4. Make recommendation based on the research findings

2. Literature Review

Hurricane Katrina may have had a devastation effect on the homeowners along the coastline especially the Gulf Coast; however, the homeowners are still affected by the hurricane over six years after the peril. Many of the homeowners had to take loans to rebuild their life far away from the Gulf Coast, while people in Maine still reel from the economic and financial impact of the disaster. According to HDA Insurance, (2014):

Homeowners policies don’t cover flood damage. To protect yourself from losses caused by most flooding, you may buy a separate flood insurance policy from the National Flood Insurance Program (NFIP). The Federal Emergency Management Agency (FEMA) runs NFIP. If your property is in a special flood hazard area, your lender will require you to have flood insurance. A special flood hazard area has a 1 percent chance of being flooded in any given year (HDA Insurance, 2014)

2.1 Home Insurances Rates

According to Inniss, (2007), home insurance rates have increased by half after the hurricane especially in the coastal areas.  However, those who took home insurance policies before that date and are not able to pay the increased insurance rates, have to contend with the new fees or have their insurance policies canceled. On the east coast, many insurance companies have come up with innovative insurance products, but the problem is that not many people living into East Coast can afford the new home insurance costs. For example, many people living in the gulf coast have had to use the newly structured insurance policy that entails shared cost of rebuilding with the homeowners having to pay for at least 60% of the costs of rebuilding. The severity of insurance made it impossible for the insurance companies to pay everyone affected. While it was predicted that violent weather is coming and the people will take up insurance policies despite the increased cost of insurance. This was not the case because not many people can afford the  increased insurance premiums. Therefore, unless the insurance policies are heavily subsidized, only 20% of the home owners can afford home owners insurance (Wirtz, 2014) .  It is not the devastation of the disasters that has lead to increased insurance cost, but the overall exposure to the vulnerable areas that makes the insurance costs doubled in a span of only five years. Abbott, (1994, pp. 212-13) argued that New York is significantly exposed to disasters such that insuring a significant percentage of homes and properties in New York would render even a large insurance company bankrupt. The whole coastline is made up of  vulnerable but expansive property and the homeowners may demand for higher compensations based on the level of destruction.

2.2 Pre-Katrina Insurance Premiums

Before the hurricane Katrina event, many insurance companies put many limitations on the insurance coverage. For example, State Farm was prompt in paying the insurance claims immediately the Katrina hit the Golf Coast.  However, the sum assured was not adequate for covering the cost of rebuilding. The homeowners policy was limited in nature this means that those who did not have the federal floor insurance policy had to incur the cost alone.  In such case, most of the homeowners had to take loans and mortgages to supplement the homeowner’s policy payout. It is important to note that the rising water causes damages that can only be covered by the federal flood insurance as opposed to the homeowner’s policy.

 2.3 Higher Insurance Rate

After the hurricane Katrina, many of the insurance companies have had to revise their insurance rates. For example, the previous insurance policy holders enjoyed very low average premium increase by between 7% to 10%; new clients have to content with 30% increase in home premium. The homeowners especially in the coastal areas faced 10-30% increased in premium rates because of the severity, exposure and frequency of the disasters. Other areas such as Florida experienced a 40% increased in insurance premiums over the last five years. In Louisiana, a 23% increase in insurance premium was made after rhea level of devastation experienced. The insurance underwriting price went higher for the homeowners because of the magnitude of the flood and the higher exposure of the coastline (U.S. Army Corps of Engineers. 2006).

3. Uniqueness Of Hurricane Katrina And Insurance Coverage

3.1Severity And Frequency

According to Inniss, (2007), Mississippi, Alabama, and Louisiana were devastated by the storm. However, the insured losses were estimated at $55 billion, this means that the insurance industry would be set back a lot of money. While the insurance industry has not had such a huge figure to in terms of insurance losses to settle because of the complexity of hurricane Katrina. For example, the loss during hurricane Katrina was composed of floods, looting. Arson, fire, power failure and vandalism. It is important to note that in case an insurance company is to settle a loss, it has to determine the cause of the loss. Therefore, when the loss is caused by a confluence of factors, then the insurance company will have to settle many disputes first (Maniloff, 2014).  After the hurricane most of the properties also deteriorated, as the areas were inaccessible leading to months before mitigations or subrogation. This contributed to further loss to the insurance companies and the home and commercial property owners. It was also not easy to mitigate the losses, as the floods were devastating and impromptu

3.2 FEMA

Additionally, the Katrina insurance claim will have to be analyzed for the interplay between wind caused damage and the rain caused damage, versus the floods. While most insurance covers are mainly about wind and rain because  floods are considered natural disaster or acts of God, the private insurances may not meet the claims because the flood damage are only covered by insurance policies  from  FEMA. Therefore, the government’s subsidized insurance covered may be the only insurance company to pay the claims. Never the less, it is still important to note that considering the magnitude and the number of people affected, the people affected were not adequately indemnified. Never the less, even the people, who were indemnified, were few as only a fifth of the people were indemnified.

Additionally, only half of the properties were indemnified due to lack of knowledge or pure ignorance of the property owners. Therefore, it is healthy to argue that the people who took property homeowners instance ad business property policies were uninsured and thus will not be indemnified for the flood loses.

Therefore, considering the possibility of large number of uninsured losses, the insurance companies brought to litigations the prospect of precluding the insurers from depending on the insurance policies to exclude the property owners and disclaim coverage.

3.3 Doctrine Of Efficient Proximate Cause

Some of the insurance companies will have to contend with large insurance claims because considering the doctrine of efficient proximate cause. This doctrine mandates that full coverage be provided if the proximate and efficient cause of the damage (i.e., hurricane wind) is covered  even if other ‘none’ covered causes also contributed to the loss.

The doctrine of efficient causes during the disasters was met with debate and litigations for over five years. It was not easy to agree whether the insurers of a real estate property and the homeowners were liable for losses arising from the combinations of a covered loss and an excluded loss.  While this had lead to the consideration of the role of tort in insurance because there were cases when tortuous acts were suspected. Additionally, there were cases when the courts found the losses excluded while some found the losses covered. Using the analytical models of the concurrent causations mostly used in relations to the legal responsibility for tortuous conducts, it was not easy to find a well-suited paradigm for assessing the responsibility of the insurance commonages in the case of hurricane Katrina were a confluence of Tortuous conducts and natural, disasters were responsible for the losses.

While catastrophic losses are not applicable to a particular jurisdictional boundary therefore, in case such as this where loses of the same class occur after a catastrophe such as hurricane Katrina can be either covered or excluded depending on the jurisdictional policies. This us because to there are differences when it comes enforcement of standardized insurance policy exclusions.

On the other hand, Pleven, (2007), argues that while many insurance policies excluded storm surge, it is important to note that there are state laws that tend to mandate full insurance coverage  because the hurricane winds  were considered as the proximate causes of the insurance loss. Despite all these strong argument, it is worth recognizing the standard insurance policies that flood is a natural disaster and catastrophic in nature, therefore losses occurring during floods are explored. Therefore, any losses caused directly by flood or indirectly are excluded like in the case of Kish, et al. v. The Insurance Company of North America (1994).

The efficient proximate cause rule therefore, is only effective when two or more perils work in sequence leading to  aloes but the  covered peril should be predominate  to an effect cause. However, if an exclude risk sets in motions a chain of reactions leading to the occurrence of a covered loss, then that loss is excluded too.

Figure 1: Images for hurricane Katrina devastation:

Figure 1: The Superdome in New Orleans was used as a shelter for all people who lost their homes in the damage. Tens of thousands poured into the Saints’ home field to survive and stay out of the cold

Figure 2:Aerial views of damage caused from Hurricane Katrina the day after the hurricane hit August 30, 2005.

Figure 3:Cars parked on the New Orleans streets are flooded to the top of the wheel wells in this ground level photograph.

3.4 Types Of Exclusion In Reference To Hurricane Katrina

Hurricane Katrina was devastating and the magnitude of the loss was huge. However, there was exclusion in that there were losses not covered by the insurance companies. Why hurricane Katrina was subject to exclusion:

3.4.1Extraordinary hazards

When the property or peril is inherent and coverage might results in inadequate premiums for the insurer and an unfair rate, discriminations against other insured who do not live in the flood prone area.  For example, hurricane Katrina along the Gulf Coast was inherent, and insuring hurricane Katrina would results in losses to the insurance companies while the premiums were inadequate to pay the commendations. The insurance companies therefore excluded floods

Exclusion because the coverage could be provided better by the government

While hurricane Katrina was a natural disaster that was also catastrophic in nature, it is mportant to note that   the insurance companies were not capitalized enough to accommodate all the people affected by the floods. It is therefore important to leave the floods to be covered by an able body such as the government. For example the government through their National Flood Insurance Program. Therefore, if an insurance company is to cover such as loss, then the government and the insurance company will both have to indemnify for the loss resulting into a duplicating of loss (Vigdor, 2008).

3.4.2 Moral hazard- confluence of perils

Disasters such as hurricane Katrina are catastrophes whose occurrence leads to total loss making it difficult to determine the amount of loss of the actual cause of the loss. For example, in hurricane Katrina, the cause of loss could be attributed to fire, floods, winds, and or water. There were cases when people looted the banks and business before, during and after the floods. In some cases, even the owners themselves looted their shops hoping to make windfall gains from the insurance companies.  With the floods, the possibility of fraudulent claims made it difficult to determine the proximate causes of the loss made it difficult to quantify the losses. Therefore, it is healthy to argue that floods are some of the excluded risks.

3.4.3Moral hazard

While Mississippi, and the gulf coast are some of the areas that are mostly exposed in relations to floods, and hurricane, the government ensured that the communities living around the coastal areas took the National Flood Insurance Program. However, out of carelessness, and indifference, many homeowners and property owners did not take the National Flood Insurance Program cover. This lead to the billions of dollars in losses. Because of the negligence, many insurance companies will not be able to indemnify the homeowner’s policyholders. Thus, they were excluded (Pleven, 2007).

3.5 Conditions

The conditions are the basic provisions that quality or limits the insurers promise to deliver on the contractual agreement. In most cases, it is the duty of the insured to inform the insurance company about the occurrence of the risk, the cause of the loss, as well as the precedence. In case of wrong information geared at malice, the insurers may decide not to indemnify the insured for the loses because of breaching the conditions

4. Flood Risk Mitigation

According to Internation, & Haufler, (2012), mitigating the flood risk can help the property and homeowners reduce their insurance premiums by up to 50%. For example according to Inniss, (2007) all the home owners were asked to carry flood insurance especially those home owners and property owners living in the flood plain such as the gulf coast. It is important to note that the Gulf coast is one of the Special Flood Hazard Area. In order to mitigate floods, the homeowners must take necessary steps to limits the extent or magnitude of loss in the event of fire. For example,

4.1 Elevating the House

Most of the homeowners in treasure land elevated their homes helping them to reduce thirty insurance premiums from $1500 to $ 400 per year. Elevating the homes helps the reduce the  severity and frequency of the risk occurring while the houses in the flood plains that are  not elevated  are still subjected to high insurance premium. However, it is important to note that each areas or zone has its own building codes that must be adhere to. Additionally, it is important for the homeowners to ensure that the homes are above the Base Flood Elevations (BFE) as it is a proven way to mitigate flood risks because it is an elevation of the 100-year flood such that the probability of the flood affecting the house is close to negligible.

4.2 Relocating The House Less Flood Prone Areas As Compared To The Flood Prone Area.

For example, living along the gulf coast only exposes the houses to flood, rain, wind and other possible disaster. However, if the house is relocated to another less flood prone area or far from them flood plain

4.3 Raising the Household Utilities

Furnace, machines, and air-conditioning equipment that could contribute to the high insurance premium rates therefore, the home owners and  property owners can raise them above the forecasted flood levels.

4.4 Controlling Or Channeling The

Creating flood openings is also another strategy that can be used to reduce the insurance premium and reduce the severity of the flood’s impact. For example, flooded water can damage property as the water flows under the building. In many cities, homeowners have decided to fill in sub grade crawlspaces to a height higher than the exterior finished grade

Finally, homeowners can register with FEMA to get financial, assistance geared at helping the citizens to improve their housing structures. This helps reduce the damage that may arise from floods and other non-specific hazards.  Controlling or channeling the floodwaters is also another effective way of mitigating the flood risks. For example, homeowners of the at risk homes should use floodwall and flood gates to redirect the flood run-off. It is not easy to prevent floods because of the magnitude, which cannot be predetermined, the best way to handle floodwater is to redirect it and provide an alternative.

5.  Did Some People Go And Buy More Insurance?

 5.1 Insurance Companies Waived Hurricane Deductibles And Insurance Policies Uptake

After hurricane Katrina, many were left divested both financially, and emotionally. However, with little assistance most people were indemnified. Other on realizing the importance of the financial assistance their counterpart have received from the government, they decided to take insurance covers. The fact that the insurance companies waive hurricane deductibles made it easy for many homeowners to take insurance of their property. However, this was only done by a small percentage, as most of the previous homeowners have not built their houses of bought houses in the flood plains. Instead, many homeowners have decided to rent houses to live in as opposed to buying because of the inherent loss and the liability that comes with the high insurance premiums (Truman, 2014).

5.2 Low Insurance Coverage For The Renters

Despite the high insurance update amongst the homeowners, many of the insurance companies have reported low insurance uptake amongst the renters as the renter insurance cover purchases was very low. This can be attributed to the problem that the previous homeowners expert need with the insurance companies and the FEMA.  Considering the complexity of r insurance laws including the efficient proximate cause, many home owners fear taking insurance especially those living in the flood prone areas.  For example, there were many cases of insurance frauds and contractor fraud. Various insurance companies’ underwriters colluded with property owners to defraud their insurance companies.  In New Orleans alone, residents did not retake insurance as the insurance companies paid much lower than they projected. On the other hand, some insurance companies paid a few people then filed for bankruptcy due to the magnitude of the payout.

5.3 Decline in insurance purchase

After the floods and higher compensation default rates, many homes owns stopped taking home insurance policies because the wind related risks were not common therefore; the insurance policy was a major loss to them. However, due to the ravaging nature of the floods, the NFIP encouraged homeowners and other insurance consumers to purchase flood insurance. The NFIP also subsidized premiums for the homeowners in the flood prone areas. However, despite the increased flood insurance purchase, the NFIP was exposing itself to another risk as the program was considered a moral hazard as the premiums that the NFIP changed were losers than the real or a actual risk of living in the gulf region where flood were prone

6. Impact of The Hurricane Katrina On The Insurance Market

With the Mississippi attorney general suing the sued five insurance companies—Allstate, State Farm, Nationwide, USAA, and Mississippi Farm Bureau because of malpractice involving collusion not to indemnify their customers because the loss was due to storm surge and not wind and wind related. Many insurance companies decided to leave the flood prone areas such as Mississippi, New Orleans, and gulf coast.  For example, state Farm stated that it would no longer underwrite new homeowners in the area. This left the homeowners and commercial property owners with only one option- litigations.

While the insurance market was setback a huge amount of money to the policyholders for compensations, it is also important to underscore the fact that the insurance companies modified their policies to include more exclusion (Internation, & Haufler, 2012). Most of the policies formulated before hurricane Katrina were changed to disambiguate the problem of efficient proximate causes, as it was a cause of a huge stalemate (Treaster, 2007).

7. Conclusion

Many homes in the range of the storm, and virtually all of those that were mortgaged, had homeowner’s insurance coverage. Nonetheless, a number of poor, black Katrina survivors owning real property found themselves in a difficult position in the aftermath of the storm. One reason for this is that a number of low-income homeowners, having owned their homes long enough to pay off mortgages, were under no obligation to purchase either standard homeowner’s insurance or flood insurance; thus, many did not

7. References

Donald Knight,&,  Asaad Shamseldin, (2005). River Basin Modelling for Flood Risk Mitigation

Balkema-proceedings and monographs in engineering, water, and earth sciences. CRC Press

U.S. Army Corps of Engineers. (2006). Louisiana Coastal Protection and Restoration Preliminary Technical Report. New Orleans, LA: U.S. Army Corps of Engineers, available at http://lacpr.usace.army.mil/default.aspx?p=report.

Vigdor, Jacob, (2008).  “The Economic Aftermath of Hurricane Katrina,” ‘The Journal of Economic Perspectives’ 22 149.

Randy J. Maniloff, (2014).  Hurricane Katrina: Coverage Disputes Begin Making Landfall. White and Williams LLP

Liam Pleven, (2007). As Insurers Flee Coast States Face New Threat, Wall Street J., June 7, 2, at A.1

Joseph Treaster, (2007). Judge Puts Katrina Settlement in Question, N.Y. Times, Jan. 27, at http://www.nytimes.com/2007/01/24/business/24insure. html?ex=1185422400&en=87b9f8b851669b92&ei=5070.

Lolita Buckner Inniss, (2007). A Domestic Right of Return?: Race, Rights, and Residency in New Orleans in the Aftermath of Hurricane Katrina, 27 B.C. Third World L.J. 325,http://lawdigitalcommons.bc.edu/twlj/vol27/iss2/2

Abbott, Alison (1994). “Insurance Company to Back out of Some Climate-Linked Risks.” Nature 372(6503): 212-13.

Internation, T., & Haufler, V. (2012). Insurance and reinsurance in a changing climate. Retrieved from http://www.eoearth.org/view/article/153847

HDA Insurance, (2014). Texas Homeowners Insurance – Texas Hazard Insurance. HDA Insurance Brokerage

Ronald A. Wirtz, (2014). Flood insurance: Rolling some expensive dice. Federal Bank of Minneapolis . fedgazette

Appendix 1: Homeowners Insurance policy information

Homeowners insurance pays to repair or replace your house and personal property if they’re damaged or destroyed by an event or occurrence covered by your policy. These events or occurrences are called “covered losses.”

Note: An insurance policy is a contract between you and your insurance company. Read it carefully to understand exactly what it covers and the dollar limit of the coverage. You should also understand your rights. Texas has a Consumer Bill of Rights for homeowners and renters insurance. Your company must send you the Bill of Rights when you get or renew a policy .

Texas Homeowners Policies

Most homeowners policies in Texas include the following coverages:

Dwelling pays if your house is damaged or destroyed by a covered loss.

Personal property pays if the items in your house (such as furniture, clothing, and appliances) are damaged, stolen, or destroyed.

Other structures pays to repair or rebuild structures not attached to your house, such as detached garages, storage sheds, and fences.

Loss of use pays your additional living expenses (housing, food, and other essential expenses) if you must temporarily move because of damage to your house from a covered loss. Your policy will pay either a percentage of the amount of your dwelling coverage (typically 10 to 20 percent) or for a specific period after the loss (such as 24 months).

Personal liability pays to defend you in court against lawsuits and provides coverage if you are found legally responsible for someone else’s injury or property damage.

Medical payments pays the medical bills of people hurt on your property. It might also pay for some injuries that happen away from your home, such as your dog biting someone at the park. A basic homeowners policy pays $500 in medical bills, but you may buy up to $5,000 in medical payments coverage.

Types of Policies

Insurance companies in Texas may sell several types of policies. If a company offers you a policy with less coverage than you’d like, ask if other policies are available. You may also be able to buy additional coverage by adding endorsements to your policy.

The two types of policies sold in Texas are

All-risk policies (also known as a comprehensive coverage or open perils coverage). These policies offer you broad protection and cover all causes of loss unless the policy specifically excludes them.

Named perils policies (also known as specified perils coverage). These policies offer narrower protection than an all-risk policy and cover only the causes of loss specifically named in the policy.

Note about replacement cost and actual cash value:

Replacement cost is what you would pay to rebuild or repair your home, based on current construction costs. Replacement cost is different from market value and doesn’t include the value of your land. Ask your company if you aren’t sure how much it would cost to rebuild your house.

Actual cash value is what you would pay to rebuild or replace your property minus depreciation. Depreciation is a decrease in value due to wear and tear or age. If your home is destroyed and you only have actual cash value coverage, you may not be able to completely rebuild.

To compare policies approved for sale in Texas, visit the Office of Public Insurance Counsel (OPIC) website at www.opic.state.tx.us.

Policy Coverages

Companies may exclude coverage for certain losses. Even the most comprehensive all-risk policy will exclude certain types of damage.

The following chart shows the most common types of losses covered or excluded from a homeowners policy:

Most Policies Cover Losses Caused by

Most Policies Do Not Cover Losses Caused by

Fire and lightning

Flooding

Sudden and accidental damage by smoke

Earthquakes

Explosion

Termites, insects, rats, or mice

Theft

Freezing pipes while your house is unoccupied (unless you turned off the water or heated the building)

Vandalism and malicious mischief

Losses if your house is vacant for the number of days specified by your policy

Riot and civil commotion

Wear and tear or maintenance

Aircraft and vehicles

Wind or hail damage to trees and shrubs

Windstorm, hurricane, and hail (this coverage may be excluded if you live on the Gulf Coast)

Mold, except what is necessary to repair or replace property damage caused by a covered water loss

Sudden and accidental water damage

Water damage resulting from continuous and repeated seepage

Policy Dollar Limits

A policy’s dollar limits are the maximum amounts your insurance company is required to pay if your house is destroyed. The Declarations Page at the front of your policy shows your policy’s dollar limits. Review your limits to ensure you have enough coverage to rebuild if your house is damaged or destroyed. Talk with your agent or a company representative if you have any questions about your insurance limits.

To receive full payment (minus your deductible) for a partial loss (such as a hail-damaged roof) most companies require you to insure your house for at least 80 percent of its replacement cost. If you insure your house for less than 80 percent of the full replacement cost, the insurance company will only pay a portion of the loss. Some companies might require you to insure your house for 100 percent of its replacement cost.

Coverage for Your Personal Property

Homeowners policies provide coverage for your personal property (such as furniture, clothing, and household electronics) as a percentage of the amount of your dwelling coverage limits. For example, if your company insures your personal property at 40 percent of your dwelling coverage and your house is insured for $100,000, your items are insured for up to $40,000. You might be able to buy more coverage by paying a higher premium.

Homeowners policies usually cap the coverage amounts for certain types of personal property, such as jewelry and art. Tell your agent or company about any special items you have that you’d like to insure. You may be able to buy additional coverage for these items for an extra premium.

Typically a homeowners policy will pay only the actual cash value of damaged, stolen, or destroyed personal property.

Inventory Your Property

Many people learn after a fire or storm that they didn’t have enough personal property coverage. Making a written inventory will help you decide how much insurance you need. It will also simplify claims.

Your inventory should list each item, its purchase date, value, and serial number. Photograph or videotape each room, including closets, open drawers, storage buildings, and garage. Keep the inventory and receipts for major items in a fireproof place or another location. Use TDI’s Home Inventory Checklist to create your inventory.

Other Types Of Residential Property Policies

Renters insurance. A landlord’s insurance doesn’t cover a renter’s personal property. Renters insurance covers your belongings, provides liability protection, and pays additional living expenses if a fire or other event stated in your policy forces you to move temporarily.

Condominium insurance. Condominium insurance covers your belongings, provides liability protection, and pays additional living expenses. It also covers damage to improvements, additions, and alterations to the condo.

Townhouse insurance. Townhouses may be insured by either an individual homeowners policy or an association master policy. If a townhouse is owner-occupied and the townhouse association doesn’t have a master policy on the building, you can purchase a homeowners policy on your individual unit. If the association has a master policy, you should get a Texas tenant homeowners policy to insure your personal property.

Mobilowners insurance. Mobile homes without wheels and resting on blocks or a permanent foundation may qualify for a homeowners policy. However, most mobile homes are insured by a mobilowners policy. A mobilowners policy is an auto policy that covers mobile homes used as residences. Mobilowners policies typically offer limited coverage.

Farm and ranch insurance. Farm and ranch owners policies insure homes outside city limits on land used for farming and raising livestock. You can pay extra to get coverage for certain farm equipment and outbuildings.

Other Types of Insurance You Might Need

Windstorm and Hail Insurance

Most homeowners policies don’t cover windstorm and hail damage if you live in any of the 14 coastal counties or parts of Harris County on Galveston Bay. The Texas Windstorm Insurance Association (TWIA) is the state’s insurer of last resort for windstorm and hail coverage. You may buy TWIA coverage through local insurance agents if you need it.

When a hurricane enters the Gulf of Mexico (80 degrees longitude and 20 degrees latitude), you may no longer change or buy windstorm coverage.

If you plan to build, add to, or renovate a home or other structure and want to get or maintain TWIA coverage, you must get a certificate of compliance (WPI-8) by having your property inspected during the construction phase. A TDI windstorm inspector can conduct an inspection free, or you may use a Texas licensed professional engineer appointed by TDI.

Flood Insurance

Homeowners policies don’t cover flood damage. To protect yourself from losses caused by most flooding, you may buy a separate flood insurance policy from the National Flood Insurance Program (NFIP). The Federal Emergency Management Agency (FEMA) runs NFIP. If your property is in a special flood hazard area, your lender will require you to have flood insurance. A special flood hazard area has a 1 percent chance of being flooded in any given year.

Local insurance agents sell NFIP flood policies and can tell you about the program in your area. TWIA flood insurance requirement. Some Gulf Coast residents must buy flood insurance to be eligible for a TWIA policy. The requirement applies to you ifyou constructed, altered, remodeled, or enlarged your property (to the extent that a certificate of compliance is required) on or after September 1, 2009. Any part of your property is in flood zones V, VE, or V1-V30 as defined by NFIP

flood coverage is available from NFIP.

Property repairs are excluded from the requirement. Repair is defined as the reconstruction or restoration of a structure that is damaged or deteriorated.

Earthquake Insurance

Insurance companies offer separate policies that cover damages caused by earthquakes. The cost is low because earthquakes are rare in Texas.

Extra Coverage (Endorsements)

If you want more coverage than the policy offers, you might be able to add an endorsement to your policy for an extra premium.

Some of the most common endorsements expand or increase coverage for jewelry, fine arts, or camera equipment. Other common endorsements provide coverage for damage originally excluded by the policy.

The following are common endorsements you can consider adding to your policy:

Backup of sewers or drains. Pays for damage caused by sewer or drain backup.

Damage to foundation or slabs. Pays to repair a foundation or slab up to certain limits.

Extended or additional dwelling replacement coverage. Pays up to a certain amount if your policy doesn’t pay enough to rebuild your home.

Law or ordinance coverage. Pays if repair costs are higher because of local building codes or ordinances.

Mold remediation. Pays for mold remediation up to a certain amount.

Replacement cost-dwelling. Pays replacement cost after you repair or replace your property.

Replacement cost-personal property. Pays replacement cost after you repair or replace your property.

Water damage from a plumbing, heating, or air conditioning system.Pays for sudden and accidental water damage. Most policies don’t provide coverage for continuous and repeated water damage.

Personal Umbrella Liability Insurance

If you have assets to protect and want more liability coverage than a homeowners policy provides, you can buy a separate umbrella policy. Make sure the agent or company fully explains the coverage because policies are different from company to company.Order15663159_05Aug2015_18-08-47

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