Home prices in Florida have fallen over the past five years. But home insurance premiums and the cost to rebuild seem to be increasing. Why? Shouldn't cheaper home prices mean cheaper insurance? The short answer is no.

Typically, the market value of an existing home is not directly related to the cost to replace it. In other words, the sales price does not have a direct relation to what it would cost to repair or replace the home if it were damaged or destroyed.

A home's market value takes into account items not covered by homeowners insurance, such as land, location, or the fact that you are zoned for an A-rated school. None of those has anything to do with the cost of replacing a bathroom damaged by a broken water pipe.

The replacement cost of a structure is based on the cost of labor and materials needed to produce the same building with the same quality. Those expenses are based on today's prices, plus what contractors are charging. If these costs go up, so will the cost to replace the home. In addition, a natural disaster may create temporary shortages of essentials and thereby force up prices. If the replacement cost estimate is done incorrectly, you may not have enough insurance to cover the costs to repair your home.

How much is enough? You can find out ahead of time. Companies such as Marshall & Swift/Boeckh and ISO have developed detailed tools to help you and your insurance agent determine a reasonable estimate.

Your insurance agent can help you work through the math to ensure your insurance is adequate to cover the cost to restore your home to the beauty and comfort you enjoy today.

Article written by Clint B. Strauch, President of Florida Peninsula Insurance Company.