We have a lot to talk about regarding insurance on your home.
DALLAS — Financially speaking, sometimes when we protect ourselves and avoid certain money dangers there are new potential threats that appear that we may not have considered. I just finished the ‘Death Checklist’ last year.
This is the final installment, and at the end of the article, I included the installments that came before it. Also, after the end of the article, you can see the full YouTube conversation with the attorney we talked to about wills and trusts. He shared a lot of great information.
The ultimate episode was about the need to create a will and possibly a trust. But for those of you who have done that, I just got a heads-up about another potential danger. It came from United Policyholders.
I have worked with them on stories before and have shared their sage advice on several occasions. The organization is a California-based advocacy group that educates consumers nationwide about insurance issues.
Trust Issues!
After this year’s devastating LA wildfires, they sent me an e-mail with the very catchy subject line: Trust Issues. I had to read that one right away. And I’m glad I did.
They wrote that after the wildfires, some homeowners who created trusts to pass along their property after they die are running into problems now getting their damaged or destroyed homes repaired and rebuilt because “the trust wasn’t named on their insurance policy”.
United Policyholders suggests, “If your property is held in a Revocable Trust, the trust should be listed as an “additional insured” on your policy. If it isn’t, and you suffer a loss and file a claim, your insurer might deny that claim on the grounds that you don’t have the required “insurable interest”. In that scenario, you would need to fight back and likely have to hire an attorney.”
What to do?
United Policyholders says these are the steps you need to take:
- Contact your insurance agent/broker or insurer immediately after transferring property into a trust.
- Request that the trust be added as an additional insured on all of your property insurance policies including landlord policies covering rental properties, earthquake, flood hurricane policies you may have in force.
- Ensure the trust’s name is listed exactly as it appears on your trust documents.
- Obtain written confirmation of this change from your insurance company and agent/broker.
And they add, “For more information read our recent post: How to make sure a home held in a trust is properly insured.”
Verifying those suggestions
Regarding their advice about adding your trust to your insurance policy, I passed that by the ‘Death Checklist’ attorney we relied upon last year to educate us about wills and trusts, Professor of Law Gerry Beyer.
About the United Policyholders suggestion, he replied: “This is excellent advice!!!” Yes, he used three exclamation points. He also added that naming the trust on your insurance policy, “is easy and cost-free.”
I got a second opinion from Dallas Attorney Lora Davis, with Davis Stephenson, PLLC. She is also the chair-elect of the State Bar of Texas Real Estate, Probate, & Trust Law Section.
Indeed, she says, “The owner of the property is the only one who has an insurable interest in the property.” That owner might be your trust. She continues, “That is why it is important that the owner be listed on the…insurance policy.”
She went into much greater detail, so I want to share her entire response:
“The advice that they have provided is sound advice, with a couple of caveats and additions. A transfer of both real and personal property to a revocable trust is common in estate planning. After the transfer, the trustee of the revocable trust is the new owner of that property. Generally, the owner of the property is the only one who has an insurable interest in the property. That is why it is important that the owner be listed on the property and casualty insurance policy.
Most, if not all, insurers will add the trustee of the trust to the policy as an additional insured without charge. The caveat to their advice below is that the trustee of a trust holds legal title to the property; the trust itself does not hold legal title. Because there is often confusion about that distinction, in 2023 the Texas legislature passed a new provision to provide that, in most cases, any instrument that names a trust as a party will be treated as if it named the trustee of the trust as a party (see Texas Property Code Section 114.087). While that will now be the case in Texas, it may not be the case in other states. Thus, it is advisable to ask the insurer to add the trustee of the trust as the additional insured.
Because a revocable trust is normally established by an individual (i.e., as the settlor) to benefit the same individual (i.e., as the beneficiary), many insurers allow for the policy to remain in the individual’s name. However, this is usually not the case for irrevocable trusts. Irrevocable trusts used for estate planning purposes generally have different settlors and beneficiaries. Thus, a new policy, rather than the addition of an additional insured, is often required when property is transferred to an irrevocable trust.
In addition to the property and casualty insurance issue, it is also important to consider title policy and homestead exemption issues when transferring real property to a trust. There are ways to ensure that the title policy will continue for the benefit of the trustee and the homestead exemption will be available for the beneficiary after the transfer.
There are many factors that need to be considered to determine if the trustee will be included in the definition of “insured” under the title policy. There are specific provisions that need to be included in a trust, whether revocable or irrevocable, to permit the property to continue to qualify for the homestead exemption in Texas.
For all of the above reasons, it is important that a qualified attorney is consulted before transferring real property to a trust.“
I second that final sentence. These perspectives and this article are not intended as legal advice but as potential best practices. Consult an attorney if you have any questions about any of this.
Meanwhile, some Texas homeowners are finding an insurance break
On the subject of insurance, homeowner coverage has become much more expensive in recent years in Texas.
Between 2020 and 2021, premiums went up 6.9%. The next year they jumped another 11.8% and then rocketed up an additional 18.1% the year after that according to data from the Texas Comptroller’s office, which concludes that those premiums are complicating housing affordability in Texas.
If you combine state data from 2023 with data from 2024, insurers requested a combined 5,266 rate change filings, and the state has allowed 4,700 of them to stand.
But some people who own new homes have found a break. That’s because many builders now offer homeowners insurance on new construction. Hippo, a big insurer that partners for a lot of that coverage, tells me it has been doing it since 2019.
They claim their new home policies in Texas offer premiums up to 56% lower than a policy for an existing Texas home. That’s because their ‘New Homes Program’ policies only consider the actual home. They say they do not consider the homeowner’s credit or insurance claims history.
I know someone who says he saved a bundle when he got a similar new home policy through a builder after he moved out of an older home and into new construction.
As always, you want to shop around for insurance quotes and make sure you are comparing similar coverage amounts and details as well as similar deductibles.
