Homeowners insurance typically included coverage for the structure itself, coverage for the contents and liability coverage for incidents occurring on the property.

The value assigned to the structures is usually the primary insurance value with contents coverage calculated as a percentage of the structure value. Liability is typically a fixed policy limit. Insurance coverage also comes with a deductible which may be a fixed dollar amount ($500 or $1,000) or a percentage, i.e., 3% of the policy value for wind damage.

The face policy value should be based on replacement value of the structure. Most homeowners policies require that the policy limit be at least equal to 80% of the estimated replacement value of the structure of a “coinsurance” feature will apply for partial losses. For example, if the replacement value of the insured improvements is $100,000 and the policy limit is only $50,000, a partial loss will be covered in the same ratio as the policy limit to replacement cost. For a $20,000 loss in the case above, a 50% coinsurance would apply and the payment for the loss would be $10,000 less the applicable deductible.

These days, it is a good idea to shop around for homeowner’s insurance. If a carrier has what they believe is too much exposure in a particular geographic area, they may stop writing policies or they may simply price them at a very high amount.

Setting a higher deductible is one way of reducing insurance cost. If you can afford a $1,000 loss, it may make sense to have a deductible of that amount. Realize that any claim on a policy is likely to lead to a cancellation and obtaining replacement insurance may cost a lot more.

In the past few years, most policies have been modified to limit sinkhole coverage to situations in which the property becomes uninhabitable. In previous years, owners of properties with only cosmetic evidence of claimed sinkhole damage, such as minor settling cracks, were able to obtain large insurance settlements which they often pocketed instead of spent or repairing the claimed damage.

Another important factor is that flood damage is not covered by typical homeowner’s policies but must be a separate policy. There is a National Flood Insurance Program that involves the Federal government but it has been criticized as collecting far too much from Florida residents which has been used to subsidize other states. Alternative flood insurance sources are now available and may be a better bargain.

Loan documents for properties financed with institutional financing will typically require property insurance and possibly flood insurance. In most cases, the homeowner will place the policies and pay for the first year and future payments will be paid by the lender from the escrow account. It is important to find out what specific policy requirements the lender has.