It's time to re-examine insurance needs

Q: How do I reassess the insurance on my home and belongings?

A: Images of storm-ravaged homes in Louisiana and Mississippi have stirred up many emotions among Americans, and one is the fear that if that happened to us, we may not be able to recover financially.

It's at times like these that people re-examine their homeowner's or renter's insurance, but it's something we all should do regularly.

"Insurance is a topic that makes your eyes glaze over, until you're faced with a problem like what's happening now," said Marvin Milton, president of Anderson Kill Loss Advisors, a subsidiary of national law firm Anderson Kill & Olick PC.

More people are buying all-risk policies these days, said Ron Cuccaro, president and CEO of Adjusters International. But many people don't have enough coverage, and they're not taking out the appropriate additional policies - for example, flood insurance, which isn't included in all-risk policies.

The first question to ask yourself is: How much would it cost to rebuild my home if it were destroyed?

One of the biggest misconceptions about homeowner's insurance is that it should be based on a house's market value. Really, it's all about replacement costs - the materials your house is made of and the labor that went into it.

A house that's valued at $500,000 on the real-estate market may only take $300,000 to rebuild, Cuccaro said. If you allow for that, you can free up money to go toward additional policies for special disasters and high-expense items.

So don't worry about upgrading your insurance when neighborhood market values rise - that's usually a function of the increasing value of land, which insurance companies don't cover.

Instead, the time to call your insurance agent is when you renovate. That should be the next question you ask yourself: Have I made any improvements to my home lately? Renovations are investments, whether they're as major as an addition or as minor as new tiling, and you'll need to protect them by increasing your coverage.

"If your insurance company doesn't know about that new marble counter you installed, it could be a point of contention later," said Matt Cullina, product development manager at Metlife Auto & Home.

Most experts recommend insuring with a company that offers guaranteed replacement cost, which will take into account any price spikes that may occur in the wake of a disaster.

"Some older homes have features like special types of wood floors that are very expensive to recreate in today's marketplace," Cullina said.

Once you've assessed the worth of your house, ask yourself about the belongings inside: How much is all my stuff is worth?

To find out, take inventory. It's a tedious and time-consuming process, but much less so now than after a break-in or a fire. It can help to have a written list of your belongings as well as video or photographic documentation.

And just as you do with your home, think about the replacement cost of your belongings, not the market value. "The actual cost to replace that stereo or that clothing is usually higher than actual cash value, which has depreciated," Cullina said.

Homeowners aren't the only ones who should rethink their insurance coverage. Renters are at risk, too - especially since so few renters have insurance. Out of the approximately 30 million renters in the United States, only about a quarter are insured, Cullina said, because renter's insurance isn't required when you sign a lease.

Keep in mind, the average rented home has $25,000 worth of contents. As a renter, you must be thorough in taking inventory and documenting any improvements you pay for in your apartment, like paint jobs or fixture replacements.

Renters, like homeowners, should be aware that the typical insurance policy has limits on expensive items such as furs, jewelry and cameras. This means if your $10,000 engagement ring is stolen from your house, your insurance carrier will probably only give you about $1,500 for it.

Review with your insurance agent which items have limits, and take out extra policies on your expensive belongings so you'll receive the full value of the item should it get stolen or damaged.

In the end, it's about being your own advocate, Milton said - your insurance agent isn't going to hold your hand before or after a disaster.

"The best quality you can have is perseverance," he said.