Fire is one of the most destructive forces that can leave homeowners needing to make claims against their homeowners insurance policies to cover a substantial or total loss of their home property.

In doing so, it’s not uncommon for some to run into brick walls when their homeowners insurance provider refuses to pay what the home is worth, claiming that the actual cash value or ACV is less than the insured value.

The Valued Policy law, applicable in 20 states including Texas, protects homeowners who are facing a total loss as the result of a fire from an insurer denying their claim for the policy limits of their homeowners policy because the current value or even the replacement cost is less than the insured amount, bearing in mind that the insurer of their homeowners policy charged more premium for this excessive coverage.

Homeowners Insurance Policy Limits and Total Fire Losses

When a fire destroys a home, claim representatives for the homeowners insurance must first determine whether or not the damage constitutes a total loss of the property or if it can be restored.

If the property can be repaired, insurance policies will pay for those repairs according to how the policy awards benefit up to the policy’s reimbursement limit.

If it’s not repairable and the property is deemed a total loss, the policy is supposed to pay the agreed-upon value of the property at the time the policy was purchased.

Instead, many homeowners throughout the country have faced insurers unwilling to pay that agreed-upon limit after the fact.

Valued Policy Law - How Does It Protect Homeowners?

The Valued Policy law has been in effect in 20 states in the U.S. for many decades and protects homeowners by making it unlawful for homeowners insurance providers to pay anything other than the agreed-upon policy limit when a property is deemed a total loss.

Texas is one of those 20 states where all insurers are required to value properties and base premiums on actual policy limits that will be paid out in the event of a total fire loss.

What Constitutes A Total Loss by Fire?

Though the Valued Policy law does protect homeowners by making sure their homeowners insurance pays what was originally agreed upon, there can be disagreements over what constitutes a total loss due to a fire which is what triggers that benefit.

As such, the topic of defining a total loss remains questionable, although a Supreme Court hearing previously outlined how total loss should be defined by insurance companies.

In this hearing, it was determined that a total loss on which to base payments is one where any uninsured homeowner would not find it prudent to rebuild from the remains of a damaged structure but would be forced to rebuild from the ground up.

Talk To Insurers About Value Policy Law

Texas homeowners who might have questions about the Valued Policy law and the replacement value of their home should contact their homeowners insurance agent to discuss how this law applies to their own policy and how the value of their property and the price of their premium is calculated.

In addition, discuss how the agency determines what is a total claimable loss by fire and what is considered repairable and how policy payment applies to each.

Homeowners should have a complete understanding of these points so they can make informed decisions when purchasing their homeowner's policies.

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