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As a homeowner bracing to pay an average of 8 percent more for homeowners insurance next year, you might be looking for ways to reduce your premium. But it's also important to make sure you understand what's covered and what's not -- whether it's your computer, dog bite injuries, floods, or the kitchen you recently upgraded -- under your standard policy.

The Insurance Information Institute (III), a nonprofit communications organization sponsored by the insurance industry, says the projected rise in 2004 will vary significantly based on where you live. Rising construction costs and increasingly expensive natural disasters are to blame.

The average cost nationwide in 2004 is projected to be $615 -- an increase of about $46 a year.

"Part of the increase reflects choices more homeowners are making," said Robert Hartwig, senior vice president and economist for the III. "People are taking advantage of record low interest rates and are moving into new homes or making additions to their existing homes in near record numbers," he said. "These upgrades and additions are pushing up insurance costs. People expect their premium to stay the same, but they don't realize they have more house to insure."

When it comes to improving our homes, some 41 million of us did so between 2001 and 2002, spending about $25 million in 1999, the most recent year for which figures are available.

Wholesale prices for plywood -- about 10 percent of the construction cost of a new house -- have tripled since April due to the strong homebuilding market, according to CNN. With framing lumber prices also up nearly 40 percent, rebuilding costs could rise about 5 percent -- an extra $10,000 on a $200,000 house if you had to completely rebuild.

Some companies will pay whatever it takes to restore your house. Some cap coverage to 120 percent above the insured value. With the increase in material and labor costs that accumulates over the years, the III says it's important to make sure your insurance coverage keeps up with your remodeling. If you add rooms to your house -- even outdoor structures like gazebos, tool sheds or a hot tub -- you need to inform your company. Otherwise you may not have enough insurance to replace the items if needed down the road.

In addition to rising construction costs, catastrophes have hit the insurance industry -- and homeowners' rates -- particularly hard. The industry paid out more than $100 billion since 1990. While major events like Hurricane Andrew and the Northridge earthquake contributed to the losses, smaller disasters -- tropical storms, tornados, wildfires, hail, ice and snow -- have lent to the increase in claims.

If you live in hurricane- or earthquake-prone regions, you'll need a supplemental policy. Hurricane coverage is offered by a high-risk pool and earthquake coverage in California is offered by the state's California Earthquake Authority.

If you get caught in a hurricane, flood damage won't be covered under your normal homeowners policy. The National Flood Insurance Program, under the Federal Emergency Management Agency, offers coverage.

The III says you should also pay attention to:

  • Mold or water damage. Many companies are now capping how much they'll cover for mold claims. Some companies are excluding mold claims but offering an endorsement -- additional coverage -- at an extra premium.
  • Your dog. Many companies will increase your premium -- or may not cover you at all -- if your dog is on the company's list of bite-prone dogs, like pit bulls, Rottweilers or wolf hybrids. Dog bites cost insurers about $1 billion a year.
  • Your computer. Your company will likely give you what your computer is worth -- not what you paid for it. You may want to get extra coverage, especially if you use your home computer for work.
  • Jewelry, artwork or other luxury items. If you've recently purchased a new diamond necklace, for example, you'll want to get a separate policy so it's covered should it be lost or stolen. Expensive items are covered, but there are usually dollar limits if they are stolen. Generally, you are covered for between $1,000 to $2,000 for all of your jewelry and furs. To insure these items to their full value, purchase a special personal property endorsement or floater and insure the item for its appraised value.
  • Change in the household. If you just got married or divorced, there are likely additional or fewer belongings in your house. You should adjust your homeowners insurance policy accordingly.

    Meanwhile, the III offers the following recommendations for lowering the cost of your insurance:

  • Think about insurance early -- like when you're shopping for a house. A house's claims history will affect your rate, so get a copy of the insurance loss history of the home. Hire a professional inspector to examine the home to make sure past problems have been repaired.
  • Raise your deductibles. You could end up saving 15 to 30 percent on your premium.
  • Shop around. Prices will vary. Make some phone calls and look on the Internet.
  • Upgrade your house. Improve your heating, plumbing and electrical systems to reduce the risk of fire and water damage then inform your insurance company. Some companies may offer savings if you add storm shutters, reinforce your roof or install stronger roofing material.
  • Secure your home. Some companies offer discounts of 5 percent or more for smoke detectors, burglar alarms or dead-bolt locks. And you could potentially trim 15 to 20 percent off your premium by installing sprinkler systems and a fire and burglar alarm that rings at law enforcement stations.
  • Obtain home and auto coverage from the same company. Many companies offer up to 15 percent off your premium if you buy more than one policy from them.
  • Keep your credit in check. Companies use credit-based insurance scores to determine premiums. Not considering other factors, a person with a favorable insurance score will pay much less than someone who isn't so credit-worthy.
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