Does your homeowners policy really cover you?
By Karen M. Kroll • Bankrate.com

If a disaster, like the wildfires that decimated parts of California last fall, destroys your house, will your homeowners insurance provide the coverage you'll need?

Many Californians are discovering their policies won't cover the costs of rebuilding their homes, nor the extra living expenses they're racking up while their new homes are under construction. Some homeowners will end up paying thousands of dollars from their own pockets.

The California Department of Insurance reports it has received a large volume of complaints from affected homeowners complaining they were underinsured.

You can avoid a similar fate by making sure you understand your coverage, and then verifying that it's adequate. "Get out the policy and read it," advises Joe Annotti, vice president of public affairs with National Association of Independent Insurers, a Des Plaines, Illinois-based trade association. "Where you have questions, jot them down and talk to your insurance company representative or agent." An insurance policy is a legal document and requires some studying.

You can start with the "declarations page" which outlines the conditions covered by your policy, as well as the coverage limits and premiums. Even if you're not an insurance expert, you should be able to understand this page. "If you can read it, you're 50 percent of the way to understanding the policy," says Amy Bach, executive director with United Policyholders, a San Francisco-based consumer advocacy group.

Make sure your policy limits adequately reflect the current value of your home. If you've made substantial improvements through an addition or renovation, let your insurance company know. Otherwise, they'll go by the original value of your home. Bach says the typical homeowner in the California fires who was underinsured came up about $95,000 short.

Reviewing your policy Look for several specific items as you review your policy.

Terms to check 1. Replacement cost 2. Inflation guard 3. Building code upgrade 4. Added living expenses 5. Special contents

1. Replacement cost
If your house burns down, you'll want your policy to cover the cost of building a new home that replaces the old one as it was. This is "replacement-cost coverage." Most policies offer this.

In fact, many insurance companies require you to insure your home for at least 80 percent of its replacement cost, according to the National Association of Insurance Commissioners. If you don't, the insurance company may cover only part of any losses you suffer. And if you have a mortgage, most lenders require you to purchase adequate replacement-cost policies.