Homeowner’s insurance: not the most exciting topic. We all have to buy it when we purchase a home, then many of us never look at our policy again. We just keep paying the ever-increasing premiums without checking whether our coverage remains sufficient, there could be new ways to save, or there may be cheaper, comparable policies. But taking a few minutes to do a little review could save you hundreds or even thousands of dollars.

Momentum is looking at homeowner’s insurance through a 2-part series based largely on our conversations with Jim Pihl, Agency Owner of Jacksonville’s The Pihl Agency with Brightway Insurance. Today, Jim discusses the steep rise in premiums for Florida homeowner’s insurance, and the financial importance of understanding the difference between market value and replacement value insurance coverage. 

In the past year, the cost of Florida homeowner’s insurance premiums has gone up an average of 15-50%.  And, surprisingly, it is not mainly due to hurricanes. 

 “In Florida, it’s mostly due to fraudulent claims,” Jim says. “For example, the truth is, most of us who’ve had our roofs replaced haven’t paid for it -- the insurance company has. Typically, a lot of companies go around the neighborhood and tell you they just did your neighbor’s roof and got it paid for by claiming there was damage due to a hail storm from 4 months earlier. That’s very prevalent in Florida, and it drives up our rates.”

Jim notes he also sees a lot of fraud with water extraction companies. “When you’re in a panic with a busted pipe, they charge you 1,000% higher than the service should cost, and your insurance company pays. Again, that drives up the rates for all of us.”

With this year’s varying rate increases, Jim suggests homeowners check to see if they can get comparable coverage with a different company. “Is your company the one that raised their rates 15% -- or 50%?” he asks. 

Comparing policies is fairly simple with insurance agencies such as Jim’s, which represent many different companies.  “We represent about 50+ companies, pretty much every one that’s open in Florida, so we offer a lot of choices,” Jim notes. “We have a third-party system where we pull out information about the client and the home, and send it out to check the price of every company. That information comes back to us and we are able to pick and choose with the customer what is best for them in terms of coverage and price.” 

Under-insuring Your Home by Failing to Buy Replacement Cost Coverage.

Jim said the biggest mistake homeowners make is failing to buy replacement cost coverage instead of the cheaper – but often insufficient—market value coverage. 

Market value is the amount you would pay for a similar home, regardless of how much it would cost to actually rebuild the house itself. For example, the market value of your home would include the value of the land, and intangibles like good schools, a great neighborhood, etc. and not just the value of your physical dwelling. Replacement cost value includes the actual cost to replace your home with a similar home at today’s construction costs, including items such as removing debris, getting blueprints, and pulling permits, as well as the actual construction.  Jim gives an example:

“Say you got a good deal and bought a 3,000 square foot home for $250,000,” Jim explains. “If that house burned down, with market value coverage the limit on what insurance pays would be $250,000. But there is no way in the world that an insurance company could rebuild that house for $250,000, since the average cost now for building a nice home is about $150 per square foot. So, you would be talking about an actual replacement cost of about $450,000 [$150/sf x 3,000 sf], and that’s what you would need your insurance policy to cover in order to be adequately insured.” 

Ultimately, while it may be cheaper on the front end to buy market value insurance, if you ever do face your home being totaled -- and that possibility is what insurance is for – it probably would not cover the full costs of a rebuild. The somewhat costlier, but more comprehensive, replacement value insurance is designed to cover the actual cost.  

Also keep in mind that if you make any significant improvements to your home, such as building an addition, finishing a basement, or upgrading to a seriously gourmet kitchen, you should let your insurance company know. You may need to up your coverage amount to ensure your policy will cover the costs of replacing/rebuilding those improvements.

Bottom line: Homeowners should periodically ensure that their policies are up-to-date in light of changes to their homes, changes in Florida laws or in policy terms, and changes in premium costs.  This may be the right time to do a review and ensure you have the optimal policy, in terms of your specific coverage and cost.

Look for Momentum’s Part 2 discussion with Jim, which focuses on the surprising truth about hurricane deductibles and potentially reducing your premium with a Wind Mitigation Inspection of your roof. 

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Jim Pihl, a Jacksonville native, is Agency Owner for Brightway Insurance, The Pihl Agency. His company is the first Brightway Agency in Jacksonville, operating since 2005. It represents 50+ homeowner’s insurance companies, making it easy to compare companies, coverages, and costs. The Pihl Agency is located at 10991 San Jose Blvd Suite 4, Jacksonville, FL 32223. Jim can be reached at 904-262-2886 or jim.pihl@brightway.com.