The Fire Next Time

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By the end of last week, nearly 3,000 homes had been swept away by the California wildfires. From the perspective of the insured, these losses are generally covered. But even with a check in hand, victims may find it difficult to rebuild their homes and replace their belongings. Homeowners who have renovated or added on in recent years may find that their policies aren't large enough. Others may be unable to remember all the treasures they accumulated over the years. How can you best position yourself to recover should you experience a similar disaster?

--BUY ENOUGH COVERAGE If you suffered the total loss of your home in a fire, you would get from your insurance company the dollar amount on your policy. Period. For the contents of your home, you would typically receive at least 50% of what your structure is covered for, plus the money from any riders bought for more valuable items. Most policies include an adjustment for inflation, explains Bob Mogil, president of the Mogil Organization, a Manhattan-based insurance broker. But if rebuilding costs have skyrocketed since you purchased your home — or if you have improved your house but have not upped your coverage — it's time for a checkup.

--BUY THE RIGHT KIND OF COVERAGE There are several types of homeowner policies. The cheapest, actual-cash-value coverage, pays you the depreciated value of whatever is being replaced. When that's a 15year-old roof or a five-year-old dishwasher, that's often less than the cost of buying a new one. You're better off paying an extra 10% for replacement-cost coverage, which doesn't adjust for depreciation. For even more security, you can buy extended-replacement-cost coverage, which provides a 20%-to-30% buffer above what should be the cost of rebuilding, to protect against the price gouging that often occurs after disasters. And, notes Mogil, anyone with a home worth more than $500,000 should look at a guaranteed-replacement-cost policy that pays to rebuild no matter how high costs go. Only a few companies — including Chubb, Fireman's Fund and AIG — offer such policies, but not in all states.

--MAKE A HOME INVENTORY Walk around your house and videotape or photograph your belongings to create a record of what you own. Include with those images an audio description or a written record of where and when you purchased each item and how much you paid. Share a copy with your insurance agent. They will be able to tell you if you need a separate policy for any items. Keep a copy of your inventory in a secure place (like a safe-deposit box) outside your home. You can't stop disasters, but you may be able to lessen their impact on your life.

Have questions? E-mail Jean, a MONEY columnist, at moneytalk@moneymail.com