Buying a new home is a dream come true for many individuals. If you are trying to buy a home in Texas, you could find yourself days away from closing thinking everything is going according to plan—and then a single call to your insurance agent changes it all. In some cases, insurance agents are unable to secure homeowners insurance for new homeowners from the private insurance sector. This is one of the biggest hurdles you can face during the home-buying process and one you may be able to avoid.
Home buyers often don't consider the claims history of their home and may not consider its level of risk strongly enough before moving forward with the purchase. Ignoring what a home or area has previously experienced may mean you can't qualify for or get affordable home insurance in the private market. When that occurs, Texas homeowners are forced to turn to the state's FAIR plan, joining about 108,000 other property owners.
In recent days, the Texas insurance commissioner approved a request by the Texas Fair Plan Association to increase rates by 6.9% across the state, along with adding/restructuring certain fees. The pending rise in insurance premiums is a significant concern for Texas homeowners already paying higher than average premiums for homeowners insurance.
What Is the FAIR Plan?
The FAIR plan, or the Fair Access to Insurance Requirements plan, was established to help homeowners with high-risk properties secure insurance when private insurance companies don’t offer coverage. Every state has an active FAIR plan, and multiple companies carry the risk associated with insuring a high-risk home, meaning they split the costs associated with a covered claim. To utilize the plan, homeowners typically must show proof that multiple insurance carriers denied coverage.
Why Buying Insurance in the Private Market Is Better
When possible, homeowners should buy home insurance in the private market for several reasons. First, there are fewer coverage restrictions. Buying insurance through the FAIR plan often comes with a long list of exclusions and restrictions. Usually these plans don’t include theft, freezing or water damage, as they are only designed for catastrophic losses such as a house fire. If a homeowner suffers a loss from an excluded peril, they are left to fund the expenses out of pocket.
There is no competition in the Texas FAIR plan; rates are the same across the state. Homeowners that compare prices in the private market will often find a cheaper rate for home insurance. In most cases, private market insurers offer discounts for security and safety features on the property, whereas the FAIR plan does not. Insurance rates are never set in stone, but FAIR plan rates can drastically increase without notice if the state is struggling to fund the program.
Questions to Ask Before Buying a Property in Texas
There are questions you should ask about a property when shopping for a home to make sure you can get reasonably priced insurance coverage.
How prone is the area to natural disasters?
Some parts of Texas are prone to more natural disasters than others. Homeowners living near the coast are more likely to be in a flood zone or considered high risk for hurricanes and tropical storm damage. While some carriers will still offer coverage, many that have suffered severe losses from these types of claims in the past choose to deny coverage.
What are the criminal or theft rates in the area?
If a county or community has a high rate of crime, such as theft from homes, carriers can decide to no longer offer coverage in these communities, or increase premiums.
How many claims have been filed on the property?
One thing that many homeowners don’t consider is the history of claims on a property. New homeowners can still find themselves unable to secure coverage if the previous homeowner reported multiple claims in a short amount of time. Since all insurance companies have access to this information through a CLUE report, any company can decide the property is too risky.