Covered by homeowners insurance? Don't be so sure

  @Money July 15, 2013: 2:09 PM ET
covered dont be so sure insurance ins

What you really have to worry about is the gaps in your homeowners insurance that leave you on the hook for costly repairs.

NEW YORK (Money Magazine)

Bought or renewed a homeowners insurance policy lately?

You've no doubt noticed that premiums have gotten pretty pricey. Rates have climbed 69% over the past decade to an average of $1,000 a year.

What you may not realize is that you could be facing another vast expense. Insurers have also been quietly hiking deductibles, scaling back basic coverage, and adding new restrictions.

Coverage now varies widely among carriers, but that's not always clear when you're shopping around, says Daniel Schwarcz, a University of Minnesota professor who has studied hundreds of policies.

"Consumers shop almost entirely on price and reputation," notes Schwarcz, and exclusion clauses are often written in legalese and buried in a policy that runs dozens of pages. Moreover, comparison shopping is difficult, since consumers rarely get a copy of the policy before they buy.

When disaster strikes, you could get hit with tens of thousands of dollars in costs for damages that you thought were covered.

The reasons for the changes are complex. Homeowners is one of the least profitable types of insurance; on average, over the past 10 years firms have lost money on these policies, according to the National Association of Insurance Commissioners (NAIC).

Insurers say that's largely because of unpredictable weather. There were 953 "weather events" insurers considered catastrophes in the U.S. in the past five years, compared with 602 in the previous five, according to industry data.

Related: 10 things you need to know about homeowners insurance

In 2011 the amount insurers paid out for the average claim was nearly double the amount in 2002, according to the Insurance Research Council. More trouble: Firms make money in part by investing your premiums; that means at times they can recoup higher claims costs with market returns. The financial crisis and low interest rates haven't provided much relief there.

To cope with squeezed profits -- and so they could beef up their reserves to pay for freak massive storms -- insurers stopped writing new policies in some disaster-prone areas in recent years and pushed for higher premiums. Regulators pushed back on the prices. "If we allowed the rate increases companies wanted, nobody would be able to afford insurance," says Kevin McCarty, Florida's insurance commissioner and a past NAIC president.

How to file an insurance claim post-Sandy

So insurers made up the gap by cutting coverage, leaving homeowners in a precarious position, say consumer advocates. "It's easy to think you're covered when you're not," says Amy Bach, executive director of advocacy group United Policyholders, which has lobbied the states to reject stripped-down policies and make coverage more transparent.

For the foreseeable future, however, the onus is on you to make sure your biggest investment is fully protected. In the following you'll find out where your coverage most likely falls short and learn the best way to plug those holes.

MORE: Water damage

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