Homeowners insurance: Are you covered?

It will never make it onto Oprah's Book Club list, but it should be required reading for every homeowner: your home insurance policy. After all, you can't close on a house without it, and if there's a fire, storm damage or a major theft, you could be financially devastated without sufficient coverage.

Insurance policies are complex legal contracts, and many of the words determine which losses are and aren't paid for. "To prevent a major disappointment after a loss, pay extra close attention to the exclusions and limitations listed in your policy," says Tim O'Brien, director of private client services for Cook, Hall & Hyde, an East Hampton insurance agency. "They're not listed on the declarations page, and sadly too many consumers only look at the amount of coverage shown there. It's your duty to read your policy or ask your agent for an explanation."

Here are seven things you need to know about your insurance today:

1. THE DECLARATIONS PAGE

Be brave and pluck your policy out of your files. While you might rather fold laundry, look at the first page: It's the declarations, or "dec," page. All types of insurance policies - homeowners, car, health and life - have one. It's a summary of vital information about your coverage: policy number, account number, start and expiration dates of coverage, total premiums and contact information for your agent and carrier.

2. RESIDENCE COVERAGE

The first thing that's covered is your "residence," also known as "the dwelling" or "the structure." In English, this is coverage if your home is damaged or destroyed in a fire, in a hurricane, or by hail, lightning or other disaster listed in your policy. The key to enough coverage? "You need enough to repair or rebuild your house in its current location and its current form based on the current costs of making those repairs and renovations," says Michael Barry, spokesman for the Insurance Information Institute, a Manhattan-based consumer education organization.

There's a difference, however, between replacement value and the market value of your home. So if the market value of your house is $500,000, your insurance value will be different because it's based on the cost to rebuild the structure exclusive of land, says Barry. A good agent has tools to determine coverage that should include a physical inspection of your home. There are too many variables - including the home's location, the year it was built, whether it has storm shutters, alarms and backup generators - to give a dollar value on the coverage.

Most standard policies also cover something called "Related Private Structures," says Barry, which are detached from your house: a garage, a tool shed or a gazebo.

3. PERSONAL PROPERTY

If you have fire, flood or smoke damage, your possessions will smell, be wet, moldy or destroyed. Bottom line: You'll need new stuff, from clothes to bedding to furniture. Most companies provide coverage for personal property equal to 50 to 75 percent of the total amount of insurance you have on the structure of your house, Barry says. So if you have $100,000 worth of insurance on the structure of your home, you'd have between $50,000 and $75,000 worth of coverage for your belongings.

This part of your policy - also known as "contents coverage" - might also include possessions that are off premises. For example, if your laptop is stolen on vacation, you have the right to file a claim and try to recoup your losses, says Barry. And, most policies also offer up to $500 of coverage for unauthorized use of your credit cards.

"All the people I speak with say they don't need the percentage of coverage their insurance policy provides - except those who have experienced a large loss," says O'Brien. "The value of the stuff we own creeps up over the years. If you have 17 suits, a TV in every room, a library of computer software or treasured books, you'll want to be compensated and replace those items."

To cover expensive items like jewelry, furs and silverware for their full value, you may want to purchase a special personal property endorsement, or floater, and insure them for their appraised value, says Barry. O'Brien recommends taking a video inventory of possessions for documentation. Keep it in a safety deposit or fireproof box. Or use knowyourstuff.org, free inventory software.

4. ADDITIONAL LIVING EXPENSES

This may sound unimportant, but it's a vital component of your coverage. It covers additional expenses if you're temporarily unable to live in your home due to a covered loss such as a fire, storm damage or a severe pipe break, says Rachel Barrett, executive vice president at The Whitmore Group, an insurance brokerage based in Garden City.

"Many people don't even realize that they may be covered to live in a hotel or rent an apartment or even a house for a period of time while their home undergoes repair or replacement," she says. Laundry expenses and even boarding your pets may be included, too. Barrett advises keeping your receipts so that you can be reimbursed for these additional expenses. A standard policy usually provides 20 percent of the dwelling coverage as the limit on payments for possessions. If you incur more expenses, then you're usually out of pocket unless you have premier coverage, she says. The cost of premier coverage is, again, based on many variables.

5. LIABILITY PROTECTION

Your mother may not sue you if she falls and is injured on the junk you left on your front steps, but your postal worker or your neighbor probably will. That's where liability coverage enters the equation, says Barry. "It covers you against lawsuits for bodily injury or property damage you or family members cause to other people," he says. "It also pays for damage caused by your pets." So, if your son or daughter gets permanent marker on your neighbor's rug or your dog bites their daughter, you're covered. (Note that some breeds of dog are often not covered.) The liability portion of your policy also pays for the cost of defending yourself in court and any court awards - up to the limit of your policy.

Liability coverage options are available in fixed increments from $50,000 to $1 million. It's relatively inexpensive coverage that many unwisely cut corners on, says O'Brien. He recommends a minimum of $300,000 worth of protection. However, if your net worth is more than $300,000 (which includes earning potential and investments, for example), you'll want an umbrella policy for extra protection.

6. AN UMBRELLA POLICY

In fact, everyone should have an umbrella policy, says Barrett. "It's absolutely worth the cost, given the additional layer of liability protection."

In the unlikely event that the deliveryman falls and becomes a paraplegic or a child drowns in your pool, you'll be sued for way more than the $300,000 of basic liability coverage you may have opted for. Umbrella policies are purchased in $1 million increments for a premium of about $250 per million per year, says Barrett.

7. FLOOD COVERAGE

Flood-related losses are excluded under standard policies, even if you are not in a flood zone, warns O'Brien. If you are in a flood zone, you must purchase a separate policy. The program is called the National Flood Insurance Program, and it is run by the Federal Emergency Management Association. Go to floodsmart.gov for more information.

"In the past year, there have been many changes by the federal government as to what constitutes a flood zone on Long Island," O'Brien says. "Many homeowners who were never required to have flood insurance must have it now. Two years ago, they may have been living in an area of low- to moderate flood risk. That's now been reclassified as a high-risk area. Unfortunately, this is a new financial burden for many families." Starting Jan. 1, preferred rates may be available for two years for homeowners who live in remapped as high-risk.

Be forewarned, says O'Brien, of Cook, Hall & Hyde. "Should a major hurricane hit Long Island - as it's predicted - you'd be wise to secure 'true guaranteed replacement cost' coverage, meaning coverage with 'no caps on limits' now," he says.

In this worst-case scenario, homeowners - especially those with homes worth more than $1 million - have to be prepared for builders who'll be able to command a higher premium for their services due to increased demand. "There are, after all, only x number of high-quality builders, and they'll gravitate toward homeowners with better insurance coverage and no limitations," he says.