The owner keeps the property insurance because he still owns the property. You hold a lease and an option, which is a contract right, not title. So he insures the building, you insure your own belongings and your liability with a renter's policy, which typically runs somewhere in the low hundreds a year. The insurance office treated you as a tenant because for coverage purposes that's what you are.
What you're actually worried about is different, and it's a contract problem rather than an insurance one. A well-drafted option deals with casualty: what happens to the option if the house burns, whether the strike price adjusts, whether you can terminate and get your option fee back, and whether the owner is obligated to rebuild. If your agreement is silent on that, you have no answer, and being silent is common in the DIY templates floating around.
On repairs, be careful about who's agreed to what. If you're taking on maintenance while paying rent, get the split written down by dollar threshold rather than by category, because "minor repairs" means one thing to you and another thing to him. Something like tenant handles items under $300, owner handles above, is easier to argue about later.
You can also ask to be named as an additional interested party on his policy so the insurer notifies you if the policy lapses or is canceled. Whether the insurer will do that varies by carrier and state, so ask them directly rather than assuming.
A real estate attorney in your state should read the casualty and repair language before you sign. That's a one-time cost against a multi-year commitment.
