First, get another insurance agent! Many don't have a clue about these things! They get nervous because many inexperienced homeowners install the stoves themselves and then there's a fire because they didn't take all the necessary precautions. "But I SAVED money doing it myself!" From what I see the location is perfect for a wood stove or another gas unit. You already have a raised hearth and a non combustable back. The only place I might see a situation arise is the chimney itself. Today's stoves need a 6 inch flue. If your chimney is 8 inches you'll need a liner installed. That can be labor intensive but for a professional it's done every day. Go to a COUPLE of stove shops. Tell them what size area you wish to heat and they'll find the right size unti for you. Also tell them the dimensions of the raised hearth. The hearth might be too small for a wood unit, but only a professional can tell for sure. Also write down the height of the centerline of the opening in the back wall from the base of the hearth. I like wood fires. Not gas. But that's a decision only you can make.

I purchased a used Quadrafire Castile pellet stove for the basement. I have a high efficiency heat pump and strips but wanted something for back up that would run off of a small generator if we have an extended power outage. I purchased 2 tons of pellets last winter and when the temps were below 30 or if we were in the basement we ran it on low which is around 1lb or 7500btu/hr. I would turn it to medium when was below 20 and ran it on high when it was in the teens or below and the heat pump was locked out which is 8lbs per hour. The warm floor made the house feel more comfortable which allowed the stat to be a little coolder. It is not hastle free by NO means. It requires regular cleaning and maintenance and the pellets can be a pain for some to deal with. I enjoy going down stairs and sitting in front of it after being outside and freezing all day. I grew up with heat from a wood furnace once you get used to that warmth a heat pump or even heat strips doesn't compare when it is in the teens outside. If the cleaning and maintenance is not kept up then the efficiency will head toward the toilet. There are some models that can go a week or more with no problem and others that need the ashes dumped daily. It isn't horrible by any means but it is not just a pour in the fuel and forget it device. The ability to have a heat source that will operate on stored fuel and less electrical power than a 200 watt light bulb it is pretty hard to beat.

I would post this question on the "Fireplaces Forum" on this site, or at www.hearth.com. Good luck.

It depends on where you are located geographically. I have what is called a dual fuel system--heat pump and natural gas. My heatng bills are about the lowest in my subdivision of 64 custom homes (the gentleman with radiant floor heat and two other guys that burn wood pay a little less). Folks in our subdivision that use natural gas furnaces only have much higher bills than mine. Folks that don't set their heat pump balance points have heating bills higher than mine. I set mine so the natural gas furnace doesn't kick on until about 25 degrees outside. I am well insulated with great windows, energy efficient and have a 3.5 tone HP for 2,981 sq. ft. 1.5 stories. Depends on your home envelope, too. Check your electric and natural gas rates which includes delivered price (i.e. total cost you paid for electricity including service charges divided by total KWH and total cost for gas including service charges divided by total therms or Cubic feet used to get your real world costs. In my case, natural gas needs to come down about 35 cents delivered price before it breaks even with my electric. Your rates will likely vary.