• Review the adequacy of your policy limits. Investigate how much it would cost to replace your home and make sure your policy limit will cover that amount. Don't insure your home for its market value -- it may cost more or less than that to rebuild your home. And even if your home were totally destroyed, you would still have the land. Try to obtain guaranteed replacement cost coverage, where the insurance company will rebuild your home even when the cost exceeds the policy limits. Be aware, however, that some companies no longer offer this coverage and even those that do define guaranteed replacement cost in different ways. Some companies will rebuild your home no matter what the cost, while others cap their coverage based on a certain percentage of the policy's face value. Make sure your policy has an inflation endorsement that increases your coverage annually for increases in construction costs.

• Obtain coverage for special risks. Basic policies protect you from fire, smoke, windstorms, vandalism, and lightning. The most comprehensive policies cover every peril except those specifically excluded, typically floods, earthquakes, war, and nuclear accidents. If you live near a flood plane or earthquake area, obtain specific coverage for these perils. Find out if your policy will pay to rebuild your home in accordance with local zoning laws and ordinances. An existing home does not have to meet new zoning laws and ordinances, but when you rebuild, you must comply with those laws. Unless your policy specifically covers that cost, your insurance company will typically only pay to rebuild your home based on its previous condition.

• Understand what other items are covered by your policy. Your homeowners policy also typically covers personal property, other structures on your property, landscaping, loss of use when your property is destroyed, and personal liability coverage. Carefully review the limits for all of these items, since you can generally add endorsements if you need additional coverage. Typical policies cover personal property for a maximum of 50% of the coverage on the home, usually paying actual cash value, which deducts depreciation from the amount paid. Try to obtain a replacement cost endorsement, which pays to replace your property and typically raises the limit to 70% of your home's coverage. Pay special attention to limits for items like jewelry, antiques, collectibles, and works of art.

How to Reduce Premiums

While you do not want to skimp on your homeowners insurance coverage, it is possible to obtain appropriate coverage and save money at the same time. Insurance companies offer discounts for a variety of reasons. Consider the following tips to help save on your homeowners insurance premiums:

• Use safety features in your home, such as fire alarms, carbon monoxide detectors, fire resistant doors, motion sensors, and security systems.

• Increase your deductible, which can significantly lower your premium. If you do so, however, keep an adequate emergency fund to cover higher out-of-pocket costs for any claims.

• Ask about discounts for using the same insurance company for other insurance needs, such as auto, life, or health.

• Stay with the same company. Insurance companies will often give loyalty discounts to customers who have stayed with the company for years, although you will typically have to ask for this discount.

• Maintain a smoke-free environment. Insurance companies will often lower premiums for households that are smoke free.