Eight Ways to Insure Your Home Insurance

Hurricane Katrina swept away all the old rules about homeowner's insurance. These days, filing a single small claim, switching insurers to save a few bucks, or assuming your coverage hasn't changed can expose you to huge financial hardships. A study released last week by the Consumer Federation of America supports what many homeowners have been feeling over the past several years: We're paying a lot more to protect our homes and getting a lot less in return. It's more important than ever to check up on your coverage, so here are eight defensive moves to keep you adequately covered and cut costs.

• Appraise your coverage. Surveys show that more than half of U.S. homes are underinsured by an average of 22%. Coverage based on generic formulas ($65 to $150 per square foot) won't cut it if you've renovated or failed to account for rising building costs. Also missing from many policies are flood insurance, sewage backup coverage, and adequate liability coverage, which run as little as $250, $50, and $25 a year, respectively, according to Kimberly Lankford's The Insurance Maze. You can assess risk and find providers for flood insurance at floodsmart.gov.

• Do a claims dry-run. If your home were wiped out, could you prove how much any lost, stolen, or destroyed belongings are worth? Just 42% of us have an inventory of our home's contents, according to the Insurance Research Council. Itemizing your assets gives you a running head start if disaster strikes. The Insurance Information Institute's free home inventory software at knowyourstuff.org can help you catalog your possessions room by room and attach photographs and scanned receipts. (Don't forget the stuff in the garage, basement, and attic.)

• Fill in the gaps. Find out whether you have "cash value" or "replacement cost" coverage. Also, consider that most policies cap payouts at 50% of the home's total coverage. "Extended replacement cost" coverage -- which pays out about 20% more than a standard policy -- and riders for valuables provide a bigger safety net for your belongings.

• Keep up appearances. Today's insurers are skittish. Just asking about filing a claim can put your insurability at risk. Avoid the chopping block by paying for claims of $1,000 or less out of pocket, upping your deductible, and buying your home and auto coverage from the same carrier. If insurability is an issue, ask if a few fixes (e.g., replacing a leaky roof or old boiler) will help.

• Check your risk reputation. Your premiums and eligibility are based on the five-year claims history in your home and auto insurance files. Your personal claims history and your property's history will be on file, if you have one. In some states, your credit history plays a factor in setting rates. ChoicePoint, which is a spinoff from credit bureau Equifax, is the dominant insurance records bureau. If you have a personal or property claims file, choicetrust.com allows you one free look a year at your C.L.U.E. (Comprehensive Loss Underwriting Exchange) report. So does ISO Insurance's A-PLUS (Automobile-Property Loss Underwriting Service), which shows your car and property claims history through the eyes of an insurance underwriter. Call 800-709-8842 to see yours for free. If you really need your insurance score -- which is similar to a FICO credit score -- ChoiceTrust offers home and auto insurance scores for $12.95 each, including an Equifax credit report. Truecredit.com bundles automotive and property scores that are based on what's in your TransUnion file and the insurance standards in your state for just $9.95.

• Check up on your insurer. See how it performs under pressure by reviewing the ratings (particularly the "complaint ratio") at the NAIC website and at ambest.com. Higher-than-average premium hikes and policy cancellation rates are signs that an insurer wants to exit a market. But before you bail...

• Rate-shop with care. Switching carriers can cost you more than what you might save on annual premiums. You will give up any good-customer discounts you've earned over the years (typically 5% each year you are claim-free, maxing out at 25% to 35%). Instead...

• Cut your existing costs. Three moves can cut your premiums by as much as two-thirds, according to The Insurance Maze: Raise your deductible to $1,000 from $250 (15% to 30% savings), purchase your auto insurance from the same company (15%), and keep a claim-free record (5% to 35%). That would save $245 to $560 on a $700-a-year policy.

Dayana doesn't own shares of the companies mentioned in this article. The Motley Fool has a disclosure policy.