The Worst Kind of Wake-Up Call
Make updating your coverage a priority--even if you don't live in a hurricane zone
By Kate Ashford

(MONEY Magazine) – You don't need to be in the path of a Category 5 hurricane to put yourself on alert. Do a homeowners insurance audit annually--actually, how about right now? Grab your policy from the back of that drawer. Now's the time to find any coverage gaps--not after disaster unfolds.

• HOME GROWN? Have you made improvements to your home--added a deck lately or sunk a living room? If you've kept mum to save on premiums, that dream master bath won't be covered. Check your policy's limits on any new stuff (electronics, appliances, furniture, jewelry), and ask about riders if you're over the caps. Also, make sure your policy pays the full replacement cost, not actual cash value (ACV). If something is damaged or stolen, ACV covers only the depreciated value--what it was worth when it was lost.

• WHIP INFLATION NOW (AND LATER) See if your policy offers inflation guard, which adjusts annually for the rise in building costs. If not, get your home valued every year to ensure full coverage. Let's say your two-bedroom ranch is now worth $450,000 in a booming market. Insuring it for that much could be overkill, since much of that price reflects the value of your land. A better bet: Find out how much it would cost to rebuild your house. Ask a realtor or contractor for local construction costs per square foot.

• LAW AND ORDINANCE If you're in anything but a brand-new home--even one as young as five years old--get what's called law-and-ordinance coverage. It'll pay to bring things like stairways, wiring and foundations up to code if you ever have to rebuild all or part of your home.

• GET A ROOM Loss-of-use coverage pays your additional living expenses, up to certain limits (12 months in a hotel, say, or a dollar cutoff), if your home is damaged or destroyed. But if you're in an area that frequently slides, quakes, burns, twists, floods or blows, you probably need more than you think. Many California wildfire victims, for instance, were out of their homes for more than 12 months. Start shopping for a new policy.

• WATER WORLD Earthquakes and floods aren't covered in most policies. Active quake zones are obvious, but not all floodplain areas are. (Check with your insurer or town hall or go to If you're on flood turf, don't skimp on flood insurance, which is federally backed and reasonably priced. Alas, about half the houses in the New Orleans area apparently had no flood insurance. Remember: Damage from events included in many home policies--like sewer backups--isn't covered if it's the result of rising water.

• LIMIT LIABILITY Most policies cover a $100,000 minimum if you're sued. If you have lots of assets, feel at risk because of your profession (a doctor in a small practice, say) or are worried about your teenage drivers, you may want more. A $150- to $300-a-year umbrella policy gets you an extra million in liability coverage.

• UP THAT DEDUCTIBLE Raising your deductible from a typical $250 to $1,000 should lower your premiums by 10% to 25%. The average homeowner only makes a claim about once every nine years, so you should end up saving thousands over the life of a policy--money that might be better saved for that next master renovation. --KATE ASHFORD ELLEN MCGIRT