How well does your homeowners' insurance really protect you? You’d think most people would know the answer, but a recent national survey found that more than 60% of respondents were either not familiar or only somewhat familiar with the details of their insurance policies. Almost 40% weren’t fully confident that their coverage was adequate and appropriate for their needs. That’s a lot of ignorance – and anxiety – about what, for most people, is their largest asset.

“Many people buy homeowners' insurance because they’re required to by the bank when they get a mortgage,” explains Steven Spiro, a principal with The Excelsior Group, an insurance agency in Valley Stream, N.Y. “They just follow orders and do what the bank tells them to.” Then they tend to forget about it – until they file a claim and discover that something they thought would be covered is, in fact, not.

Here’s a quick way to test your knowledge of common holes in your homeowners' coverage:

The bank didn’t tell me I had to have flood insurance, so I don’t need it. Right? Wrong. As thousands of people discovered in the wake of Hurricane Sandy, Tropical Storm Irene or even a particularly torrential downpour targeting their area, flooding can happen anytime and anywhere. “Ninety percent of all natural disasters have some form of flooding,” says Jeanne Salvatore, spokesperson for the Insurance Information Institute (III), an industry-supported nonprofit organization. Yet only 13% of Americans surveyed by the III had flood protection. Even if you do not live in a high-risk area, according to the III, more than 20% of all flood-insurance claims are filed in low-to-moderate flood-risk areas. “Flood insurance is the one coverage everyone should have,” stipulates Salvatore.

Standard homeowners' and renters' insurance policies do not cover damage from flooding, which, for insurance purposes, is strictly defined as the rising and overflowing of a body of water onto normally dry land. However, flood coverage is available as a separate policy from the National Flood Insurance Program ( Note that there is a 30-day waiting period before the coverage takes effect, so don’t wait for an ominous weather forecast to buy protection.

If the storm sewer backs up into my basement, am I covered? You may think that water overflowing from your toilet, sink or shower drains is a flood – after all, it looks like a flood – and that flood insurance would cover it. It won't. Neither, in most cases, will your regular home insurance, although more than two-thirds of people surveyed by the III believe that damage from a sewer backup/sump pump failure is covered by their homeowners' policy. You may want to request – and pay extra for – this additional protection (called an endorsement). Otherwise the cost of the repairs will come from your own pocket.

If new building codes require upgrading undamaged parts of my house, will my insurance cover the costs? Although nearly two-thirds of Americans surveyed by MetLife said “yes,” the answer is “no.” In most cases, policies don’t pay for upgrades in undamaged parts of homes, even when those improvements are mandated by stricter building codes. However, most insurance companies offer additional “ordinance or law” coverage – for an additional price.

If my home is destroyed in a fire, will my policy cover the cost of rebuilding? Maybe – although probably not the full cost, much to the surprise of nearly three-quarters of MetLife’s survey respondents. Nearly all insurance companies cap how much they will pay if you have a total loss, unless you buy optional coverage. And because depreciation is taken into account when calculating the value of personal possessions, homeowners could find that their insurance check is far smaller than they’d like. Furthermore, most policies subject property losses to a deductible as well.

On a positive note: Many homeowners' policies cover “additional living expenses,” or “loss of use” costs, when you can’t inhabit your home due to a disaster covered by insurance. If ALE coverage is included in your policy, then your insurer will pay for the “actual, reasonable and necessary increase” in your living expenses while your home is being repaired or rebuilt.

Another bit – or “byte” – of good news: Most policies cover the cost of replacing electronically downloaded and stored data and entertainment, such as music and ring tones, which could be expensive to replace without easy access to free re-downloads. At least, you can listen to music to cheer you up.

Are there any other areas in which my homeowners' coverage might come up short? “The single thing that jumps off the page is additional liability protection,” says Spiro. For that reason, he suggests purchasing an umbrella policy, which, as the name suggests, extends further protection from lawsuits resulting from an injury in your home or on your property (that includes your vacation home, car and boat). “It’s cheap enough that it shouldn’t be ignored,” he notes, pointing out that an additional $1 million of coverage costs between $150 and $200 per year, whereas “if someone sues you and you lose, you have to empty your bank account to pay the damage.”

If I’m not happy with my existing coverage, can I buy added protection? Usually, yes. Most insurance companies offer “buy-back” endorsements, which let you pay more money for specific coverage.

How often do I need to update my policy? At the very least, you should re-examine your homeowners' policy every year, urge both Spiro and Salvatore. Any structural change to your home – installing new windows, adding a bathroom, fixing up the basement – should trigger a call to your insurance agent. Ditto for any major life changes that increase the number of possessions in the house, such as getting married or having an elderly parent move in. Even buying new furniture or re-carpeting is worth mentioning when you renew your policy. If it’s valuable to you, it’s worth protecting.

The Bottom Line

To prevent unpleasant surprises when you are least prepared for them, carefully read through your policy at least once a year. If you need additional coverage, call your insurance representative to inquire about buy-back protection. Since some types of coverage, such as flood insurance, require a waiting period to take effect, don’t dawdle about beefing up your policy.

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