Is your home insurance really enough?

For many homeowners, home insurance is paid for in escrow as part of the monthly mortgage payment--making it easy to forget about entirely. But it's important to know what your policy covers, and whether it's enough. You don't want to wait until after an accident to find out that you're underinsured.

According to Michael Barry, vice president of media relations with the Insurance Information Institute, the very first question you need to ask yourself is this: "Do I have enough coverage to rebuild my home in its current location?"

It's an important question, especially if you live in an area where there's a higher-than-average risk that your home will be completely destroyed--such as California, where wildfires can result in a total loss. But Barry says it's important in other parts of the country as well. He points out that some carriers use coverage estimates based just on square footage, and may not take into account higher-quality construction, such as granite countertops or fancy tile floors.

For that reason, Barry recommends getting a quote online, and then dealing with the company's local agent. "They have a better understanding of the local market," he says. "And they're better to deal with in the event you have to make a claim."

When evaluating your coverage, in addition to highlighting construction details that might cost more in a rebuild, it's important to inventory your personal belongings accurately. The Insurance Information Institute offers free software at KnowYourStuff.org to help catalogue your possessions. Be sure to update the inventory every couple of years, and note any improvements to your home.

The two other main types of homeowner's coverage include personal liability (in case someone gets hurt on your property and sues you) and additional living expenses (which pays for costs such as rent while you rebuild). Where you should set these coverage levels depends largely on where you live, and a local agent can help you set them appropriately. (There's also flood insurance, but that's generally offered only through the U.S. government; for more information on that check out FloodSmart.gov.)

Your best bet for finding the most effective -- and affordable -- homeowner's insurance is to shop around online, according to Barry, and to talk to your neighbors to see if they are happy with their insurance carrier.