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By By Jean Chatzky

How much home insurance do you need?According to the Insurance Information Institute, you need enough coverage to insure the structure of your home, cost of living expenses (in case you're forced out of your home), all of your personal possessions, and potential liabilities to others.

What doesn't a homeowners policy cover?Most disasters are covered under the typical homeowner's policy, but you'll need separate insurance in the case of floods or earthquakes.

As with all insurance coverage, the first step in purchasing homeowners or renters coverage should be shopping around for the best deal. If you already have an auto insurance policy, start by calling that agent or insurer — often you'll get a discount by purchasing both coverages through one company.

Then make at least three more calls for quotes, including one to a direct writer — an insurance company that uses an 800-number-based sales force, like Amica (800-242-6422). Or, if you have a military connection, call USAA (800-531-8100).

You should also call at least one insurer with its own sales force, like State Farm or Allstate, and one independent agent, who can quote you a variety of prices.

And, of course, you'll want to check the ratings of the insurance company with a firm like A.M. Best or Standard & Poor's. Discounts abound, but you have to know to ask for them. Here are some places where you can save significant money:

Boost your deductible. Increasing your deductible from $250 to $500 or $1,000 can save you as much as 25 percent, according to the Insurance Information Institute.

Invest in safety. Get a burglar alarm and you could save at least 5 percent on your annual premiums. Other safety devices, like smoke alarms and state-of-the-art deadbolts, can also net you discounts.

Membership pays. Belonging to certain alumni or automobile associations may result in a discount.

The benefits of being home. If you're home more often than not, you ought to be able to save 5 percent to 10 percent on your homeowners policy. The logic: You're less likely to be burgled and more likely to notice small fires or other problems. Note: The same is true if someone else is typically home — if you have a live-in housekeeper, for example.

Buy smart in the first place. New homes made of materials that aren't likely to burst into flames can net you a discount, as can brick homes in some parts of the country (because they're less likely to suffer damage from hurricanes) and frame houses in other parts (because they're less likely to succumb to earthquakes).

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Being loyal to a single insurer can cost you. In 1999, Consumer Reports surveyed its readers and found that they had been loyal to their carriers for an average of 11 years and 75 percent regularly renewed their coverage without shopping around. That's a mistake. Safer cars (say with air bags and antilock brakes) with tougher theft protection, coupled with the aging of the population, have boosted profit margins for auto insurers. They're willing to pass those savings on to consumers in the form of cheaper rates — but you're not going to get a discount unless you ask for one and shop around.

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Do you need an umbrella?You already know that we live in a litigious society. That's why you need liability coverage on your home. Such a policy will provide a nice check in case someone slips and falls on your wet bathroom floor and sues you. As with auto insurance, most homeowners policies come with $100,000 to $300,000 of coverage. But unless you're worth less than that (including all your assets), you should buy more coverage in the form of an umbrella liability policy.

Umbrella liability insurance is a relatively inexpensive way to make sure you have complete liability protection on all of your turf as well as your car. It may also cover you in other liability cases, such as if someone sues you for libel. And basic umbrella coverage may include all owner-occupied residences, up to four rental units, drivers under twenty-five, and small boats.

Typically, umbrella policies start to pay only after the liability protection under your homeowners or auto policy exhausts itself. To make the purchase most cost-effective, you'll want to increase the liability coverage on both your home and auto insurance to $300,000 before you buy the umbrella. According to the Insurance Information Institute, you should then be able to buy $1 million of umbrella coverage for $150 to $300. The next million will cost about $75, and $50 for each additional million worth of insurance.

Singles and life insuranceIf you're single, chances are you don't need life insurance. After all, life insurance is protection for other individuals who depend on your income. But there are a few exceptions. Here are a few reasons to get a policy if you're single:

  • If you support in any way your elderly parents and want that support to continue.
  • If you've incurred substantial debts and want to make sure there's money to pay them off if you die.
  • If you want to cover your own funeral expenses.

Are you underinsured?Do you have enough insurance coverage in the case of theft? How about flooding? Or earthquakes? In reality, most homeowners — some 64 percent in 2003 — are underinsured.

Life insurance for homemakers?If you're a stay-at-home mom, don't assume that just because you don't earn an income you don't need life insurance. You do. But how much do you need?

Figure out what it would cost to replace the services you provide for your family. If you weren't around, how much would it cost to hire a person (or more likely, people) to care for the kids, transport them, do the grocery shopping, act as the family bookkeeper (if that's something you do), etc.? After you figure out how much that would cost each year, increase that number each year by 3 or 4 percent for inflation, and determine how many years you'd need such services. Perhaps until your youngest child is in junior high? Perhaps longer? Also, if your spouse thinks that he would reduce his working hours should something happen to you, you need to factor the need to replace that portion of his income into the equation, as well. The point is, not only are you of critical value emotionally to your family, you're of critical value financially — and you need insurance, too.

Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Her latest book, "Pay It Down: From Debt to Wealth on $10 a Day," is now in bookstores. Copyright ©2005. For more information, go to her Web site, .