Insurance Basics
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Make sure you're completely protected

Just because you have a homeowners or contents policy doesn't mean you're completely covered. Regular policies often exclude certain disasters like earthquakes or floods, or put a ceiling on the dollar amounts they'll pay for certain items like jewelry or antiques.

So before you purchase that insurance policy, ask about exclusions.

Flood insurance

The nation got a lesson in the importance of flood insurance when Hurricane Katrina decimated the Gulf Coast. Even people who had homeowners insurance found themselves wiped out if they hadn't included flood insurance in their coverage.

"They thought they were covered," says Tena B. Crews, author of "Fundamentals of Insurance."

"Find out if you're in a flood zone," says Alessandro Iuppa, former president of the National Association of Insurance Commissioners. If you are, "the folks issuing your mortgage are required to tell you you have to have flood insurance on your property," he says.

Where to get it: private companies (a few offer it) or through the National Flood Insurance Program though the Federal Emergency Management Agency, he says. But it limits what you can collect in a total loss, so be aware of just how much would be covered.

Who needs flood insurance? That's a judgment call, says Iuppa. But it's wise to at least consider it. While a homeowners or contents policy will cover you from water that comes from above, only flood insurance will pick up the tab for water that comes from the ground up.

Do you live on the coast or in a low-lying area? In an earthquake zone? A tornado-prone area? Sometimes one natural disaster, (like a hurricane or tropical storm), will cause another, (like a flood), so weigh the possibilities.

A rider for high-value items

Disasters aren't the only exclusions that might be in your policy. Insurance companies often place a ceiling on how much they'll cover on certain high-value items, such as jewelry, art, furs, antiques or special collections. To get them fully covered, you have to purchase a special policy on those items, sometimes known as an endorsement or rider.

So when you're adding up the value of your possessions, you want to look at what they are, as well as what they're worth. And ask your agent to give you the limits of coverage in certain categories, if there are any in your policy.

Remember that buying a policy is only half the job. If you ever want to use the policy and file a claim, you need to make an inventory of your belongings.

If you carry $200,000 worth of homeowners insurance on your personal belongings and get wiped out in a storm, the insurance company won't necessarily just write you a check for $200,000. First, you have to provide a list of what you had and what it would cost to replace it.

Proof of ownership
  • Buy or borrow a video camera and take a walking tour of your home. Go through each room slowly, to show every item. And don't be afraid to narrate, says Crews. "Talk through it," she says. Do closeups of anything that holds particular value.
  • If you prefer the written word, you can download free software from the Insurance Information Institute that will help you compile a list of your possessions.
  • And don't forget those basics that you need for everyday living, like clothing, kitchenware and linens.

Whichever method you use, be sure to update your inventory periodically to allow for those new purchases like that TV or new computer. And keep a copy in a safe place away from the house, so that if you have a complete loss (fire, flood, tornado), you'll be able to get your hands on it.

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