Ask your agent these five questions...
After she tells you the amount, you might want to check with several local builders to confirm how much it would cost to reconstruct a home like yours and immediately increase your coverage as needed. Make sure the amount you'll receive for rebuilding covers the cost of meeting ordinances or codes that have been added or updated since your house was originally constructed. If your policy limits or excludes ordinance and code changes, ask your agent for a new policy.
Maybe your house burned down in a forest fire and you never again want to see another fir tree. If you're thinking of moving to the New Mexico desert, you need to make sure you'll still get a check for the amount for which your old house was insured. Some insurance policies may stipulate that you have to rebuild on the same plot of land in order to fully recoup.
Take stock of your clothing, furniture, and electronics—does the coverage your agent quoted seem like enough? If not, ask whether you can increase the amount. While you've got her on the phone, check to make sure your possessions are insured for replacement cost, which means that the company will pay to replace your 1993 television set with a brand-new one. Finally, walk through your home and videotape everything you own. In addition, keep receipts for expensive items. Store the receipts and video in a safe place—with a relative or friend, for instance.
It's likely that you'll have to rent an apartment while the construction of your house is under way. All homeowners policies pay the cost of temporarily living away from home—including rent, hotel bills, and restaurant meals—but coverage varies. If you have a large family or you're in an area where the cost of living is high, consider purchasing a policy with broader coverage. Also, keep in mind that you'll have to pay your mortgage each month (even though your house is gone, you still owe the bank). Would the amount you'd receive from the insurance company allow you to survive comfortably? Ask how to collect it—in a lump sum, or when you present your bills?
If you live in a designated flood zone, your mortgage lender will require you to purchase flood insurance when you buy your house. Even if you're in a low-risk area, you may want to consider such a policy. Standard homeowners insurance doesn't cover any type of flood damage, whether it's caused by a large-scale natural disaster or melting snow.