Texas Laws on Insurance Deductibles: What You Should Know

Texas laws require policyholders to pay their insurance deductibles and prohibit contractors from waiving or absorbing them. Insurers can demand proof of deductible payment before releasing claim funds. Violations by contractors can result in criminal charges, ensuring transparency and protecting consumers from fraudulent practices.

In this guide, SCR, INC. General Contractors explains Texas laws on insurance deductibles in detail to help you avoid insurance fraud.

If you still have more questions about roofing insurance deductibles in Texas, call 972-839-6834. Our roofing contractor will answer all your questions and provide more professional assistance.

1. Payment of Deductibles

Under Texas law, policyholders must pay any deductible applicable to a first-party claim made under their property insurance policy. When you file a claim, you must cover the deductible amount before your insurance company pays for the remaining repair or replacement costs.

2. Prohibited Practices

The Texas Business & Commerce Code, particularly Section 27.02, prohibits contractors from offering to waive, absorb, or otherwise offset your insurance deductible. It is illegal for contractors to entice customers with promises to cover the deductible as part of their service agreement. Engaging in such practices can result in a Class B misdemeanor charge against the contractor.

3. Proof of Payment

Texas insurance companies have the right to require reasonable proof that you have paid your deductible before they release the full payment for your claim. Acceptable forms of proof include:

A canceled check
A money order receipt
A credit card statement
A copy of an executed installment plan contract or other financing arrangement

If the insurer does not receive proof of deductible payment, they may refuse to pay the claim for the withheld recoverable depreciation or replacement cost holdback.

4. Consumer Education

In coordination with other state agencies, the Texas Department of Insurance (TDI) is tasked with educating consumers and service providers about the requirements related to insurance deductibles. This education program includes information on the legal obligations of policyholders to pay deductibles and the illegal nature of deductible waivers by contractors.

5. Legal Amendments

In 2019, Texas passed House Bill 2102, further clarifying and enforcing these regulations. The amendments to the Texas Insurance Code and Business & Commerce Code ensure that:

Policyholders must pay their deductibles.
Contractors are prohibited from covering deductibles.
Insurers can require proof of deductible payment.

6. Practical Implications

For Policyholders: Always be prepared to pay your deductible and provide proof of payment to your insurer. Be cautious of any contractor offering to waive or cover your deductible, as this is illegal and can result in complications with your claim.
For Contractors: Adhere strictly to the law by not offering to waive or absorb deductibles. Ensure that all service agreements comply with Texas regulations to avoid legal penalties.

Understanding and following these Texas laws on insurance deductibles helps ensure compliance and protects consumers and contractors from legal issues and potential fraud.

What is an Insurance Deductible?

An insurance deductible is the amount you must pay out-of-pocket before your insurance company starts to cover a claim.

Generally, a higher deductible reduces your policy’s premium but increases your out-of-pocket expenses in case of a claim. Choosing a deductible that fits your financial situation and risk tolerance is crucial.

How Deductibles Work in Homeowners Insurance Policies

In homeowners insurance policies, a deductible is an amount you must pay out-of-pocket before your insurance company covers any costs for a claim. The deductible can be a specific dollar amount or a percentage of your home’s insured value. For example, if your home is insured for $150,000, a policy with a $500 deductible means you pay the first $500 of any claim. Conversely, a 5% deductible would mean you pay $7,500 out-of-pocket.

Here’s how it works in practice:

Specific Dollar Amount Deductibles: If you have a $500 deductible and a hailstorm causes $6,500 in roof damage, you would pay $500, and your insurer would cover the remaining $6,000.
Percentage-Based Deductibles: If your policy has a 5% deductible on a $150,000 home, you must pay $7,500 before your insurance starts to cover any repair costs.

Deductibles are applied to each claim individually, meaning if you have multiple claims in a year, you must pay the deductible amount for each one. Choosing a higher deductible can lower your premium, but it also means you will pay more out-of-pocket if you need to file a claim. Selecting a deductible amount that aligns with your financial capability and risk tolerance is essential.

What Does a 2% Deductible Mean and How To Calculate It

A 2% deductible in an insurance policy means you are responsible for paying 2% of your home’s insured value out-of-pocket before your insurance company covers any claim costs. This type of deductible is often used in homeowners insurance policies, particularly for storm damage caused by certain perils such as windstorms or hurricanes.

How to Calculate a 2% Deductible

To calculate a 2% deductible, follow these steps:

Determine Your Home’s Insured Value: Find the total insured value of your home, which is usually listed on your insurance policy declarations page. This amount represents the cost to rebuild your home in case of a total loss, not the market value.
Calculate the Deductible Amount: Multiply the insured value by 2% (or 0.02).

Example Calculation

Insured Value: Let’s say your home is insured for $200,000.
2% Deductible Calculation: Multiply $200,000 by 0.02.

200,000×0.02=4,000200,000 \times 0.02 = 4,000200,000×0.02=4,000

In this example, your deductible would be $4,000. This means if you have a claim, you must pay the first $4,000 out-of-pocket before your insurance covers any additional costs.

Practical Implications

Higher Out-of-Pocket Costs: A percentage-based deductible, like a 2% deductible, can result in higher out-of-pocket costs, especially for expensive claims.
Premium Reduction: Policies with higher deductibles typically have lower premium costs, as you are assuming more financial responsibility in the event of a claim.

Considerations

Affordability: When choosing a deductible, consider how much you can afford to pay out-of-pocket in case of a claim.
Risk Assessment: Evaluate the likelihood of filing a claim. If you live in an area prone to natural disasters, a higher deductible might significantly affect your finances.
Policy Details: Review your insurance policy carefully to understand how deductibles apply to different types of claims.

Understanding how to calculate and manage a percentage-based deductible helps ensure you make informed decisions about your insurance coverage and financial preparedness.

What Does a Roof Payment Schedule Mean & Does It Change My Deductible?

A roof payment schedule refers to the payment structure set by your insurance company for roof repair or replacement costs. This schedule dictates how and when payments will be made, whether in a lump sum or installments and under what conditions. Understanding this schedule is crucial, as it impacts the timing and amount of your out-of-pocket expenses, including your deductible.

Roof Payment Schedule Explained

Initial Assessment and Payment: After you file a claim for roof damage, an insurance adjuster assesses the damage. Based on their evaluation, the insurance company provides an initial payment, minus your deductible, to cover immediate repair costs.
Depreciation Holdback: For policies with replacement cost coverage, the insurer may hold back a portion of the payment, known as recoverable depreciation. This amount is released after you prove that the repairs or replacements have been completed.
Final Payment: Once the work is done and you’ve submitted proof, such as receipts or invoices, the insurance company releases the remaining funds.

Does the Payment Schedule Change My Deductible?

No, the roof payment schedule does not change your deductible. Your deductible remains a fixed amount or percentage as specified in your policy. Here’s how it works:

Fixed Deductible: If you have a fixed dollar amount deductible (e.g., $1,000), you will pay this out-of-pocket before your insurance company pays for the repairs.
Percentage-Based Deductible: For a percentage-based deductible (e.g., 2% of your home’s insured value), you calculate the deductible based on your policy’s terms. For instance, if your home is insured for $200,000 and your deductible is 2%, you will pay $4,000 out-of-pocket.

Practical Example

Insured Value: Your home is insured for $200,000.
Deductible: 2% of $200,000, which is $4,000.

If roof repairs cost $10,000, you pay the first $4,000 (your deductible), and the insurance covers the remaining $6,000. If your policy includes a depreciation holdback, you might initially receive less than $6,000, with the rest paid once repairs are verified.

Key Points to Remember

Fixed vs. Percentage Deductibles: Know which type your policy has and how it affects your out-of-pocket costs.
Depreciation Holdback: Understand that some funds might be withheld until repairs are completed and documented.
Proof of Payment: Keep records of your payments and repairs to ensure you receive the full amount due from your insurance.

Understanding your roof payment schedule helps you manage expectations and financial planning when dealing with roof repairs, ensuring you meet your deductible and comply with insurance requirements.

How would a contractor help me avoid paying a deductible?

In Texas, it is illegal for contractors to help you avoid paying your insurance deductible. Some contractors may offer to waive, absorb, or reimburse your deductible as an incentive to earn your business. This could include providing free or discounted goods and services to offset the deductible. However, such practices are prohibited under Texas law.

The Texas Insurance Code and Business & Commerce Code amendments make it a criminal offense for contractors to engage in these activities. Contractors who advertise or promise to cover your deductible can face Class B misdemeanor charges. Additionally, insurers can refuse to pay your claim until you provide reasonable proof that you have paid the deductible, such as a canceled check, money order receipt, or credit card statement.

Complying with these laws is important to avoid legal complications and ensure your insurance claims are processed smoothly. If a contractor offers to help you avoid paying your deductible, they are breaking the law, and you should report such actions to the Texas Department of Insurance.

What should I do if a contractor offers to waive my deductible?

If a contractor offers to waive your deductible, it is important to recognize that this practice is illegal in Texas. Here’s what you should do:

Decline the Offer: Politely but firmly refuse the contractor’s offer to waive, absorb, or reimburse your deductible. Explain that you are aware that such practices are against Texas law.
Report the Contractor: Contact the Texas Department of Insurance (TDI) to report the contractor’s illegal offer. You can reach TDI at 800-252-3439. Reporting helps enforce the law and protect other consumers from fraud and substandard work.
Choose a Compliant Contractor: Select a contractor who adheres to the law and does not offer to waive deductibles. Ensure they provide clear, transparent estimates and agreements for their services.
Provide Proof of Payment: Be prepared to show proof that you have paid your deductible when filing a claim. Acceptable proof includes a canceled check, money order receipt, credit card statement, or an executed installment plan contract.

Following these steps ensures that you remain compliant with Texas laws and protect yourself from potential legal and financial complications. Always prioritize working with reputable contractors who respect legal requirements and offer quality service.

What if I can't meet my deductible?

If you cannot meet your deductible in Texas, it is important to understand that state laws require policyholders to pay their insurance deductibles for claims. Here are some steps you can take if you find yourself unable to pay your deductible:

Payment Plans: Check with your insurance company to see if they offer any payment plans or financing options for your deductible. Some insurers may allow you to spread out the payment over time.
Savings and Budgeting: Review your budget to see if you can make adjustments to save the amount needed for your deductible. Setting aside a small amount each month can help build the necessary funds.
Emergency Funds: If you have an emergency fund, consider using it to cover your deductible. Such funds are typically intended for this—to help cover unexpected expenses.
Loans or Credit: As a last resort, you might consider taking out a personal loan or using a credit card to cover the deductible. Be mindful of the interest rates and repayment terms associated with these options.
Seek Assistance: Local community programs or non-profit organizations may offer roofing financial assistance or guidance on managing such expenses.

It is illegal for contractors or service providers to waive or absorb your deductible in Texas. Always adhere to the legal requirements to avoid potential issues with your insurance claims. If you need further assistance, consider contacting the Texas Department of Insurance for guidance and support.

SCR Inc. Helps with Denied Insurance Claims

At SCR Inc., we specialize in assisting with denied insurance claims, ensuring you receive the compensation you deserve. Our team, comprising former insurance adjusters, provides expert guidance through the complex claims process.

We emphasize strict adherence to Texas insurance deductible laws, ensuring all claims are compliant and valid. If your hail or storm damage claim has been denied, contact us for a thorough assessment and documentation of your loss. We are committed to overturning denied claims, leveraging our extensive experience and professional network to restore your property effectively and fairly.

Call 972-839-6834 for expert assistance with denied roofing insurance claims.

Why Choose SCR, Inc

We are fully licensed and insured.
Over 20 years of experience
Locally operated
We are available 24/7
We are a member of The Good Contractors List, which offers you a $10,000 guarantee of quality.
We have a proven track record of getting denied claims overturned

FAQs

Is it illegal to absorb deductibles in Texas?

Yes, it is illegal to absorb deductibles in Texas. According to the Texas Business & Commerce Code, it is a criminal offense for a construction contractor to offer to pay, waive, absorb, or offset a policyholder’s deductible for a property insurance claim. Contractors in this practice can be charged with a Class B misdemeanor.

Is it illegal to waive auto insurance deductible in Texas?

Yes, waiving an auto insurance deductible in Texas is also illegal. Like property insurance, any attempt by an auto repair service to waive or absorb an auto insurance deductible is against the law. The Texas Business & Commerce Code criminalizes such practices to ensure that policyholders pay their deductibles as their insurance policies require.

Can the insurance deductible be waived?

In Texas, insurance deductibles cannot be waived. State laws mandate that policyholders are responsible for paying their deductibles when making a claim. Any offer to waive or absorb the deductible by service providers, such as contractors or repair shops, is illegal and can result in criminal charges.

What is proof of payment for deductibles in Texas?

Proof of payment for deductibles in Texas can include:

A canceled check
A money order receipt
A credit card statement
A copy of an executed installment plan contract or other financing arrangement that requires full payment of the deductible over time

Insurance companies may refuse to pay a claim until they receive reasonable proof that the policyholder has paid the deductible.

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