Fool's School

If you own a home, you need to be carrying homeowners insurance. But that's not all: You need to be carrying enough insurance. If your coverage is insufficient, you might pay lower premiums, but you might also end up in hot water should disaster strike.

It's a good idea to review your policy every now and then to make sure it does enough for you. For starters, it should cover the cost to rebuild the home, not just what you paid for the home — construction costs can go up significantly over time. Call your insurer and review your policy with them.

Your policy should cover your personal possessions, as well. It's smart to inventory them in detail; you might want to walk around and take photos or video. Focus on high-value items, such as jewelry, electronics and expensive collections. You may need more than what a basic policy covers, so check with your insurer.

Most policies will offer at least $100,000 in liability coverage, which comes into play if you get sued. It's often best to get at least $300,000 to $500,000 in coverage, though — and perhaps more if you have substantial assets and a lot to lose.

Another good idea for those with substantial assets is umbrella insurance. It's a separate policy, often surprisingly inexpensive, that can provide additional coverage beyond the limits of your other policies.

Depending on where you live, you might want extra coverage to protect you from various disasters such as flooding, wildfires, sinkholes and earthquakes. Standard homeowners insurance policies often don't cover such events. You can learn what risks your home faces at sites such as RiskFactor.com and FLASH.org.

Ideally, you'll also want your insurer to cover some or all of your living expenses if you aren't able to live in your home for a while.

It's smart to shop around to find the best coverage you can afford from well-rated insurers at least every few years. Having sufficient coverage can save you a lot of heartache as well as money. ¦