Black Mold

by Gary Foreman

Dear Dollar Stretcher,
I live in Texas and I just got my renewal for my homeowner's insurance. Last year, I had a payment of $723. It went up to $1,123 for the new year. Their explanation was that it was due to all the claims for black mold. Do you have any ideas on where to look for cheaper insurance? I am with Allstate.
J. F.

Wow! That's a 55% increase. And a very good reason to ask what alternatives are available. Unfortunately for JF, it's not as simple as calling around looking for cheaper rates. Let's take a look at black mold, what problems it's causing for the insurance industry and their customers and finally, what JF can do to lower the costs of her insurance.

Most homes contain some mold. All it takes is a little moisture and an organic food source. Recently, we've learned that newer, more air-tight homes are better for growing mold. And one of the varieties is a 'toxic black mold'. For all you scientists out there, it's stachybotrys chartarum. Please don't ask for the pronunciation!

Mold is commonly found in homes after the wallboard gets wet. The mold causes a number of problems. Besides being unsightly, it smells and can cause breathing problems for some people. Experts estimate that 10% of the population is allergic to mold.

A leaky water pipe or roof is all it takes to start a mold colony. Clean-up can be a large job. The source of the leak must be eliminated. Moldy materials need to be removed or decontaminated. If the moldy area is more than 10 square feet, an environmental professional might be consulted. For health reasons, some people move out of their homes until the clean-up is completed.

Enter the insurance companies. They're seeing many more claims for black mold than in prior years. A 50% increase for some companies. And, it's common to spend $40,000 for a claim.

To further complicate things, JF lives in Texas which has been particularly hard hit by the black mold problem. In fact, Texas insurers want to be able to exclude mold coverage from their homeowner's policies. The Texas Department of Insurance is considering the request. Two of the three largest insurers have stopped offering policies that cover water related damages (including mold).

The Texas situation highlights the problems faced by insurance regulators. Naturally they want to hold down the cost of insurance. But if they hold prices too low, the insurance company will lose money and stop offering insurance in the state.

To further complicate matters, there are a number of lawsuits that also drive up costs. Not surprisingly, a visit to the internet will turn up attorneys who are willing to sue on a victim's behalf. One Texas family was awarded $32 million dollars and bulldozed their home.

We should all have access to the courts to protect our rights. But more lawsuits and lawyers means greater costs that must be paid either by the insurance companies or their customers. No one ever cleaned mold while sitting in a courtroom.

What can JF do? Her choices are fairly limited. The most obvious thing is to check with other insurance companies to see if anyone offers a comparable policy for less money. In Texas, the two largest competitors to Allstate have already stopped writing new policies. So JF might have trouble finding a good alternative. Her best bet would be to check with an independent agent who represents a large number of insurance companies.

She can also consider dropping coverage for water related damages from her homeowner's policy. That could make a big difference in her bill. Before doing that she needs to understand the risk. If a pipe bursts, she won't have anyone to help pay for damages or repairs. The age and condition of her home should influence her decision. She'll also want to consider her ability to pay for a repair if it's needed. Remember that the reason for insurance is to cover losses that you can't afford to pay for yourself.

I'm not familiar with Texas law, but she might be able to buy coverage that would exclude "additional living expenses". That covers the cost of moving your family out of the home while the clean-up is completed. Don't forget that you might need to move out for other reasons. For instance, a fire. Think through the potential expenses and how you'd handle them.

Another option would be to increase her deductible. Yes, that could cost her some money if she had any claim. But it would reduce her insurance bill.

One final thought. Although a big premium jump is painful, it's still only $33 per month. JF might be wise to swallow hard, pay the bill and keep the coverage she has. Remember, the $400 she'd save wouldn't go very far in covering a $40,000 clean-up.

Gary Foreman

Gary Foreman is a former financial planner and purchasing manager who founded The Dollar website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, and Gary shares his philosophy of money here. Gary is available for audio, video or print interviews. For more info see his media page.

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