Protecting Your Possessions

Understand the fine print before disaster strikes.

If anything, I suspected that my husband and I had over-insured our life's limited possessions. After all, we paid plenty for homeowners and auto insurance. We'd even purchased an umbrella policy to kick in once other coverage limits had been exceeded.

It didn't take long, though, for a few insurance experts to highlight holes in our so-called safety net. Two critical questions we were asked to consider seriously included:

1. Were our home's possessions insured at their replacement cost or simply their current aging value? I didn't know. And
2. Were we protected if the delivery guy slipped while dropping off a package at my home-based business? Well, no.

Determining what coverage you need is only half the equation. Shop around—aggressively. "You can easily pay double for exactly the same product from one company to another," says J. Robert Hunter, director of insurance for the Consumer Federation of America, a consumer advocacy organization.

Some Key Decisions to Make

• Determine your home's replacement cost: If your home is severely damaged, rebuilding may cost you more than selling it today, says Don Griffin, vice president of personal lines at the Property Casualty Insurers Association of America, a trade group. Particularly for older homes, the necessary materials may be costly. And policies often don't cover the changes needed to meet current building codes. Ask about that additional coverage, he says.
• Protect your possessions' true value: Check that your homeowners policy covers replacement costs, rather than only what your valuables are worth today, insurance experts say. Scrutinize coverage limits for paintings, jewelry, and other pricey items, Griffin says. If they are insufficient, consider purchasing a rider to cover those, he says. One way to estimate the total value of your home's contents is to first calculate the cost of big-ticket items like furniture, appliances, and electronics, says Jack Hungelmann, a Minneapolis-area insurance agent and the author of Insurance for Dummies. Then take that number, he says, and double it.
• Consider flood insurance: Even an inch of water in your home can be devastating. About 25 percent of claims are filed in regions of the country at low to moderate flood risk, according to the National Flood Insurance Program. Policies can be obtained for as low as $112 annually, they say.
• Take liability seriously: For the majority of people, your liability limits should be high enough that you're not worried about running out of coverage, Hungelmann says. Keep in mind that homeowners policies typically exclude any business-related lawsuits. By purchasing a rider, you're protected if an injury occurs on your home premises, even if your home is only occasionally used for business, he says.
• Check out umbrella policies: To boost peace of mind, consider an umbrella policy of
  $1 million or more, suggests Hungelmann. "One of the single greatest values in the insurance business is the personal umbrella policy," he says. A $1 million policy can run as little as $200 to $300, Griffin estimates. In return, the policy provides $1 million of coverage on top of your home and auto limits. For example, if you're sued for $800,000 following an automobile accident and your auto coverage limit is $300,000, the umbrella will kick in for the extra $500,000.
• Scrutinize your deductibles: Feel like your insurance bills are stacking up? One often-missed way to cut premiums is to increase your deductible. If you can absorb it, consider setting your home and auto deductibles at $1,000, Hungelmann says. Hunter agrees. "You don't want to file claims anyway," says Hunter, a former Texas insurance commissioner. "Especially in auto insurance—they'll raise your rates most every time you file a claim."

Charlotte Huff is a writer from Fort Worth, Texas, who specializes in health and business issues.