It may be hard to determine exactly how much insurance you need. In general, however, you should make your decision based on two key considerations:
• How much is what you´re insuring worth? • How much can you afford to pay out of your own pocket to repair or replace your property?
Purchase only the amount of insurance you would need to repair or replace the property you´re insuring without causing you any financial hardship. (Back to top)
2. What is a deductible?
A deductible is the amount you must pay yourself toward the repair or replacement of your damaged property before the insurance company will pay. For example, assume you have an auto policy with comprehensive coverage and a $500 deductible. If your car is damaged in a hailstorm and the repair bill is $2,000, you´ll have to pay $500 toward the repairs. The insurance company will then pay the remaining $1,500. If the damages totaled $500 or less, you would have to pay the full amount yourself. Most types of insurance policies require you to pay a deductible. The higher the deductible, the lower your premiums will likely be. If you have a claim, however, you´ll have to pay more out of your own pocket. Make sure you know how much you can reasonably afford to pay if you have a claim before choosing a deductible amount. (Back to top)
3. How do I shop for insurance?
You should always get quotes from several companies before buying an insurance policy. Rates often vary significantly from one company to another.
Use TDI´s Automobile Insurance Price Comparisons and Homeowners Insurance Price Comparisons to help you shop. The price comparisons list licensed companies that sell insurance in your area and give estimates of what companies might charge. Also included are contact information, financial ratings from an independent rating organization, and complaint indexes for each of the companies. This information can help you choose companies that are financially sound and have a good customer service record.
It´s important to buy from licensed companies. You can learn whether an agent or company is licensed by using the Agent Search and Insurer Search features on our website. You may also call the TDI's Consumer Help Line
1-800-252-3439 463-6515 in Austin
Also, it´s a good idea to get recommendations about insurance companies and agents from family and friends.
If a company turns you down, keep shopping. Insurance companies have different criteria for deciding which applicants to accept and what rate to charge. You may be able to find a company willing to accept you, even if others won´t. (Back to top)
4. How are rates determined?
Insurance rates are usually determined based on the likelihood that a company will have to pay a claim on a policy and how much the company might have to pay.
Insurance companies use a process called "underwriting" to assess your likelihood of suffering a covered loss during the course of the policy term. Underwriting evaluates a variety of "risk factors" that, taken as a whole, provide an indication of someone´s statistical probability of suffering a loss. Some of the most common risk factors companies consider for various lines of insurance include:
Automobile insurance. Insurers usually consider a driver´s age, gender, driving history, type of vehicle, and credit score. Younger drivers, and especially young males, are generally at a higher risk of having an auto accident. Drivers with tickets or accidents and drivers of sports cars are also generally considered a higher risk.
Homeowners / renters insurance. Fire risk is generally the primary risk factor for policies that cover homes and personal property inside a dwelling. Homes constructed of fire-resistant building materials and in urban areas with good local fire protection will generally be assessed as a lower risk. Homes in areas prone to hurricanes, hail, or windstorms will generally be assessed as a higher risk for homeowners insurance.
Health care coverage. A policy applicant´s age, medical history, and current health status are some of the primary risk factors considered. Older people with a history of poor health are generally considered a greater risk than younger people with no health problems. (Back to top)
5. How long does an insurance policy last?
Insurance policies typically provide coverage for one year or six months. You must pay your premiums to keep your coverage in force during the policy period. At each renewal term, you should expect the insurance company to re-evaluate the risk factors that determine your policy rate. If you filed a claim for a loss during the previous term, or if your personal circumstances have changed in ways that increase your future risk, expect your rate to increase. When the company sends you a renewal notice, it´s a good time to review your coverage and consider adding additional coverages or eliminating any coverages you don´t need. It´s also a good time to shop around to see whether you can find a better deal. However, if you decide to change companies, make sure your new policy is in effect before the old one expires. Letting a policy lapse leaves you unprotected. In addition, most companies will charge you a higher premium, and some might refuse to sell you a policy, if you had any previous lapses in coverage. (Back to top)
6. Can I pay my premiums monthly?
Yes. If you pay in installments, your insurer will usually add an additional fee to cover the administrative cost of processing multiple payments. Some insurers may also offer you a discount if you pay your entire premium in one lump sum. If you pay your entire policy premium up front, the insurer must refund any unearned premium if you or the company cancels your policy before the policy term is up. For instance, if you pay your premium for a six-month policy in a lump sum but then cancel it after four months, the company must refund the final two months of premium to you. (Back to top)
7. What happens if I don´t pay my premium?
If you don´t pay your premium, your insurance company will cancel your policy and you will no longer have coverage. The insurer must generally provide written notice of cancellation due to nonpayment at least 14 days prior to the cancellation date. If a company cancels you for nonpayment, it could cost you extra in the long run. Texas law allows insurers to charge more to policyholders who have had gaps in their insurance coverage. It´s important to make sure your policy stays in force. Texas requires all drivers in the state to maintain auto liability insurance at all times. If you´re caught driving without insurance, the penalties can be stiff. Also, it´s important to remember that if you still owe money on your car or house, your lender will generally require you to have insurance. If you cancel your coverage or the insurance company cancels it, the insurer will notify your lender. The lender will then buy its own policy and will increase your payments to cover the costs. (Back to top)
8. Can I get arrested or sued if I don´t have insurance?
Texas law requires drivers to be able to pay for any accidents they cause. Most drivers do this by buying auto liability insurance. You´ll have to show proof of financial responsibility when you obtain or renew your drivers license, when you have your vehicle inspected, and whenever you´re asked for it by a law enforcement officer. Your insurer will give you a card that shows that you have the minimum amount of insurance required by the state. Driving without insurance can result in a fine or jail time.
Banks typically require mortgage recipients to maintain homeowners insurance as a condition of any home loan. If you fail to maintain a homeowners policy, the bank could take legal action.
Insurance also helps protect you from having to pay damages from certain types of lawsuits. For example, homeowners and renters policies will usually pay in the event that a visitor is injured on your property and sues you. If you don´t have insurance and you´re sued, you could be liable for paying any damage awards or settlements yourself. (Back to top)
