If you own a home in Florida, you know the pain. Over the last five years, home insurance premiums have absolutely gone insane.

For a while, we were seeing massive increases due largely to fraud from roofing companies. The good news is that legislation has stopped a lot of that fraudulent activity, so we are no longer seeing those terrifying rate hikes. Now, increases are hovering more in the 5% to 8% range, consistent with inflation.

However, premiums are still high. I have seen premiums jump from $1,000 a year to $4,500 over just a few years. One of the most common mistakes I see homeowners make is over-insuring their property. Property prices in Florida have skyrocketed, and people think they need to insure their home for its market value.

Here is the secret: A huge portion of your home’s market value is actually the land, or the “dirt” it sits on. But if your house burns down, the dirt is still there. You don’t need to insure the dirt. You only need to insure the “replacement cost,” which is the cost to rebuild the structure itself.

For example, you might buy a house for $500,000, but the cost to rebuild it might only be $250,000 or $260,000. If you insure it for the full $500,000 sales price, you are paying for coverage you can never use.

We help our clients do the math to ensure they are covering the rebuild value, not the real estate market value. It is one of the best ways to keep your premiums manageable in this tough market.