If you finance a home in Texas, your lender will require homeowners insurance before closing and for as long as the loan is outstanding. Insurance protects the lender's collateral, but it also protects your largest asset. Texas weather, from hail in the north to hurricanes on the coast, makes the details of a policy especially important.
What lenders typically require
- Hazard coverage on the dwelling at least equal to what the lender specifies, usually tied to the cost to rebuild or the loan amount.
- The lender named as mortgagee on the policy, so it is notified of changes and included on claim payments.
- A maximum deductible that the lender considers acceptable.
- Proof of coverage before closing, usually the declarations page and a paid receipt for the first year.
- Flood insurance if the home is in a high-risk flood zone on the FEMA map and the loan is federally backed or regulated.
Lenders may also require windstorm coverage if the main policy excludes it.
Windstorm coverage on the Texas coast
In designated coastal areas, many standard policies exclude wind and hail damage. Homeowners there often buy windstorm coverage separately, sometimes through the Texas Windstorm Insurance Association (TWIA), which serves as an insurer of last resort for eligible properties. Eligibility can depend on building code compliance and inspections, so ask about requirements early in the purchase.
Flood insurance is separate
Standard homeowners policies do not cover flood damage. Flood insurance is available through the National Flood Insurance Program and private insurers. Even if a lender does not require it, consider it if the home is near water or in an area that floods during heavy rain. Policies typically have a waiting period before coverage begins, so do not wait until a storm is in the forecast.
Understanding deductibles
Many Texas policies have a separate deductible for wind and hail claims, often expressed as a percentage of the dwelling coverage instead of a flat dollar amount. A percentage deductible can mean a much larger out-of-pocket cost than you expect. Look at the dollar figure it represents for your home and make sure your emergency savings could cover it.
Replacement cost or actual cash value
A replacement cost policy pays to repair or replace damaged property without deducting for age, subject to the policy terms. An actual cash value policy deducts depreciation, which can leave you paying more of the cost. Some policies treat roofs differently from the rest of the home. Read how your policy settles roof claims.
How to compare policies
- Get quotes from several companies or an independent agent, using the same coverage limits and deductibles.
- Compare dwelling, other structures, personal property, loss of use and liability limits.
- Note exclusions, such as water backup, mold, foundation or wind and hail.
- Check each company's licensing and complaint history with the Texas Department of Insurance.
- Ask about discounts for impact-resistant roofs, security systems or bundling.
The Texas Department of Insurance runs HelpInsure.com, which offers consumer guides and information for comparing homeowners policies.
Bottom line
Your lender sets minimum requirements, but the right policy for a Texas home depends on its location and risks. Understand your wind and hail deductible, consider flood coverage, compare like-for-like quotes and keep your servicer updated when your policy changes.
This article is general information, not legal, insurance, tax or lending advice. Rules and lender requirements change, so confirm details with your lender, the relevant Texas agency or a licensed professional.