Insurance should match home value

By James Thorner, Times Staff Writer

Published Thursday, April 9, 2009

Property values have dropped by a third since the pricing peak in summer 2006. So why haven't homeowner's insurance premiums free-fallen by a corresponding amount?

They have. But you're going to have to give up delusions of grandeur about your home's real value. The fact is, many of us are overinsured. We haven't factored in home devaluation.

The insurance increases we got socked with in 2006 had manifold causes: hurricane damage, future storm risk, giant insurers leaving the market, home price escalation, frivolous sinkhole lawsuits.

While we've still got a hurricane bull's-eye on our backsides, despite three years of relative calm in the Caribbean, there's plenty of give on home prices.

For starters, a home's value includes the price of the lot. Lot values range from a few thousand dollars in the orange-grove exurbs to million-dollar salt­water spreads in St. Petersburg and Clearwater.

If your house burns to the ground or collapses in a cyclone, the land probably isn't going anywhere. So why are you insuring it? (Sinkholes and coastal erosion are different matters).

If your home is flattened, rebuilding costs are lower. Labor accounts for most of the drop, but materials costs for things like steel should continue sliding this year.

If the thought of reducing insurance coverage leaves you feeling vulnerable, you can do what I did: split the difference. My home's value has dropped by $100,000 the past three years, but I compromised and trimmed coverage by $50,000. I'm still shielded from catastrophe but saved $500 a year in premiums.

Such policy tweaks reduced my annual premium from $2,100 to $1,400, a drop that mirrors the devaluation of Tampa Bay area the housing market.

Insurance agents may disagree with that strategy. Better to insure yourself to the hilt, they'll say. Values will rise again and you'll be underinsured.

But ask yourself one thing: If the real estate industry is deflating, why should property insurance soar like a big fat hot air balloon? The pin's in your hand. Pop it.

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