Insurance is one of those necessary expenses we have to live with. Why? If you don’t protect yourself and the worst happens, you could wind up broke.

Mortgage lenders will generally require you to purchase insurance for at least the amount of your mortgage. The concept is that if your house burns to the ground, or is ruined by some other disaster, you’ll have enough money to repay your loan.

But buying a policy in the amount of your mortgage won’t leave you with much to start the rebuilding process, experts say. And it doesn’t even scratch the surface when it comes to properly protecting your assets.

“There are so many key issues when it comes to buying the proper property and casualty insurance policies,” says Nancy Coutu, owner of Money Managers Advisory, a money management firm based in Oakbrook, Illinois. “A lot of people don’t understand the scope of what they have, what it’s worth, and how much it would really cost to replace it.”

&”People forget what they have. They forget how it has increased in value. And, they forget to mention when they acquire something new,” says Suzanne, an insurance executive who has worked in the business for 30 years.

When identifying what kind of insurance you need, you should think about two things, says Jeanne Salvatore, vice president of consumer affairs for the Insurance Information Institute (

“First, you have to purchase enough insurance so that you’re fully covered if there was a natural disaster and your house was destroyed and you lost everything. And, you have to protect your assets,” Salvatore explains.

You can get insurance that pays out the amount of the policy. Or, you can get guaranteed replacement insurance (also known as extended insurance) which, though not available in every state, will pay to replace your house or furnishings, even if it costs more than the stated policy amount.

Because of the cost of paying for such recent natural disasters as Hurricane Andrew, most insurance companies limit the amount of coverage, even on a guaranteed replacement insurance policy. For example, if you insure your home and its contents for $1 million, and there is a 20 percent cap, the most the insurance company will pay is $1.2 million. Many companies will have a 10 percent cap.

Guaranteed replacement cost insurance is expensive, but the coverage is worth it.

“Let’s say you had your home appraised two days before Hurricane Andrew appeared on the horizon, and it was appraised at $100,000. But because of the hurricane, many of those homes were rebuilt for $150,000 because the price of labor and materials went sky high. That’s why you need guaranteed replacement cost or extended insurance,&” says Suzanne.

Flood insurance is important, too, but most homeowners mistakenly think it they are protected from floods in their regular insurance coverage. They’re not. Standard flood insurance policies backed by the federal government are limited to $250,000. However, if your home is worth more, you can find additional policies that will cover you above and beyond the government’s maximum amount.

The most important property and casualty coverage there is may also be the least expensive: umbrella liability insurance.

Coutu says many homeowners are misinformed when it comes to their umbrella liability policies. “Most homes are carrying $1 million in liability. For $60 to $100 per year, you can carry several times amount.”

Coutu believes in today’s litigious society, even $2 to $3 million in umbrella liability coverage may not be enough.

“You may want to have $5 to $6 million in umbrella liability coverage, or more, if you own things like a boat, or RV, or swimming pool, where people can get hurt,” she adds.

Experts generally advise consumers to carry umbrella liability policies equal to their net worth. If you’re worth hundreds of millions of dollars, how much liability coverage you carry depends on how much of a target you could be.

A mistake homeowners often make is not increasing the value of their property and casualty policies as their home and assets go up in value. Condo and co-op owners often don’t realize that the building’s insurance policy will only pay up to the bare walls of the unit – which sometimes doesn’t include anything over the plaster and drywall, or bare floors.

When assessing your insurance needs, don’t forget to take all of your activities into account.

“Many times, homeowners’ will forget to include a home office rider. If you have people who come in to work for you, you’ll need a workman’s compensation policy,” says Coutu. “If they get hurt in your house, you could be liable.”

If you’re sending children back to college, make sure your policy covers their vehicles, equipment, and personal effects when they are at school, she adds.

When selecting an insurance agent, you can choose a broker who works only with one company, or you can choose an independent agency that will work to find the best coverage for you from a variety of insurance companies.

Before you agree to purchase a policy, be sure to check out the insurance company. Choose insurance companies that receive an A rating or better with a top financial score from Best Ratings ( The financial score relates to the amount of surplus cash the insurance company has on hand to pay claims, according to Salvatore.

Even if it seems you’re paying premium upon premium, no one can afford not to have the protection insurance provides.

“While people often say they’re insurance poor, it’s really a small price to pay for complete protection,” notes Coutu.