Homeowners in Florida are looking for strategies to lower their homeowners insurance cost and some agents are offering a new way for policyholders to save money. Unfortunately, many experts are warning it could be risky, according to a recent Tampa Bay Times article.

The sale of “dwelling/fire” coverage is ticking up in Florida according to an analysis by the South Florida Sun Sentinel. In fact, the increase is currently outpacing the sale of traditional all-perils policies that are the standard in most insurance markets.

Dwelling/fire coverage is also known as landlord insurance and is usually used by owners of rental properties, houses sitting empty, or second homes. Dwelling/fire policies cover the basic structure of a home from specific perils that usually include fire, hurricanes and other natural disasters.

However, most dwelling/fire policies do not cover damage to your personal property and contents of the house, water damage, loss of use, or liability. Liability protects homeowners in the event someone is injured at the property. Falls, slips and dog bites are common liability incidents. Homeowners may be able to purchase these coverages separately.

In most states, dwelling/fire makes up a small percentage of homeowner policies. In the Sunshine State, there are 4,111,091 homes insured by all-perils policies at the end of last December, and only 771,571 were insured by dwelling/fire policies.

However, since June of 2022, the number of dwelling/fire policies have increased by a shocking 81,684 policies while all-perils policies only increased by 47,768. Insurance agents in Florida have confirmed a skyrocketing demand for dwelling/fire policies recently.

Not all of the increase in these policies is due to higher premiums. According to Locke Burt, CEO of Ormond Beach-based Security First Insurance in the Tampa Bay Times some of the increase is due to a rising number of rental units.

“We’ve definitely seen more homeowners opting for (dwelling/fire) policies lately,” said Brian Murphy, owner of The Murphy Agency, a Brightway Insurance franchise in Palm Beach Gardens in the Tampa Bay Times article, “particularly for investment properties or when trying to reduce premium costs.”

Dwelling/fire coverage is usually dramatically less expensive than a standard policy. Data shows that a dwelling/fire policy costs $2,649 on average, compared to $3,644 for a traditional policy.

As dwelling/fire policies have become a bit more mainstream with homeowners, some insurers are marketing them to homeowners as a cheaper alternative to traditional coverage

Stacey Giulianti, chief legal officer at Florida Peninsula, says in the Tampa Bay Times article that insurance agents asked the insurer to add dwelling/fire to their coverage options to give them more flexibility.

While dwelling/fire coverage is a less expensive option, it does come with coverage gaps that can leave the homeowner on the hook for large out of pocket costs. Many insurers offer a few different options for dwelling/fire insurance and which one you choose can make a major difference if your home is damaged or destroyed.

The three types of dwelling/fire are:

  • DP-1: This policy provides very basic coverage. It only pays out actual cash value and coverage is limited to a few named perils, often covering, fire, lighting damage or internal explosions. In most cases, wind and hail damage is excluded.
  • DP-2: This policy type typically offers an option for replacement cost coverage and covers additional perils such as wind, hail, vandalism and damage from burglary.
  • DP-3: This is often called “open peril” coverage, and these policies cover damage to the house as well as other structures on the property. They typically cover damage from wind, hail and theft.

In many cases, homeowners can add coverage to these policies for screened aluminum structures, personal property theft, accidental water discharge, dog liability, computer equipment as well as other coverages that are typically included in a standard all perils policy.

Homeowners may also choose a dwelling/fire policy because they don’t qualify for more standard coverage. If their roof is too old or other issues crop up, insurers may not be willing to write a standard policy.

If a home has a mortgage, the lender will require that it is protected by a homeowners policy. In most situations, a dwelling/fire policy will satisfy lender requirements as long as it covers the outstanding loan balance amount or the replacement cost of the home.

While dwelling/fire coverage can be upgraded with additional coverages, you may end up paying more than a standard policy by the time you are done covering all of the various perils.

In addition, dwelling/fire coverage can leave a homeowner paying major costs out of pocket if the home is severely damaged. Homeowners should carefully consider their exposure when going with a dwelling/fire policy and make sure they can afford to cover their various out of pocket costs if they experience a major loss.