In Texas, you may face a coinsurance penalty if your policy limit is less than 80% of the RCV (Replacement Cost Value) of your home. This means you will have more out-of-pocket expenses to cover a loss beyond the policy deductible you choose. The co-insurance clause requires that you carry insurance to cover at least 80% of the RCV of your home.

This can be rather confusing so here is an example to help clarify. Let's assume the RCV of your home is $200,000. The co-insurance clause would require in this example that you carry at least $160,000 of home owner insurance coverage (80% of $200,000). If you purchased only $80,000 of coverage you would be underinsured by half of the requirement and therefore the insurance company would be obligated to only pay half of a loss less the policy deductible. So if you have a $40,000 loss on your home and had a $2,000 deductible, your policy would only pay half the amount of the loss less the deductable or $18,000. You would be responsible for the remaining $22,000 of the casualty loss.

Be sure when you purchase your home owner insurance policy in Texas you take this co-insurance clause into consideration to avoid a significant financial loss in the event of a casualty.

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