Insurance is designed to assist an individual, family or business in recovering from an unexpected loss. You can buy insurance for almost anything, but in this column we'll focus on insurance for your home.

Simply having a homeowner's insurance policy isn't enough. An insurance policy isn't a cure-all. Unfortunately, many people learn this when they are most in need of help - after a crisis such as a fire, flood, earthquake or tornado. Now is the time to review your insurance policy to determine if you have proper coverage.

Coverage determines to what extent you will be compensated in the event of a loss. If your home were to burn to the ground, you might expect your insurance company to pay for the construction of a new home and to replace all of the furniture and personal property that was lost. But, that's not the way it works. Depending upon the type of policy, its coverage and dollar limits, you might find that you are in trouble.

How much coverage is enough? A better question would be how much are you willing to sacrifice? If the answer is nothing, as it should be, your coverage should provide you with full replacement of your loss. Penny-wise consumers sometimes compromise coverage to save money. Unfortunately, the savings of a few hundred dollars a year can result in the loss of tens or hundreds of thousands of dollars.

Not all homeowners' insurance policies are created equal. Here's how some shake out:

HO-1
Covers the dwelling and contents from 11 types of perils: fire or lightning; windstorm or hail; explosion; riot or civil commotion; aircraft; vehicles; smoke; vandalism or malicious mischief; theft; damage by glass or safety glazing material that is part of a building and volcanic eruption.

HO-8
For older homes. Covers the dwelling and contents from the same 11 types of perils listed in HO-1, but only for repairs, not for replacement cost. Usually written for homes with historical value that would be impossible to replace.

HO-2
Covers the dwelling and contents from 17 types of perils; those covered in HO-1 and HO-8, plus falling objects, weight of ice, snow or sleet, three categories of water-related damage from home utilities or appliances and electrical-surge damage.

HO-3
(Broad Form) Covers the dwelling and contents from the 17 perils listed in HO-2, plus any other peril not specifically excluded in the policy. Standard exclusions are flood, earthquake, war and nuclear accident.

HO-4
This is a renters policy. It covers personal property (no dwelling coverage) form the 17 peril types listed in HO-2.

HO-6
A condominium owner's policy that, like the renter's policy, covers personal property from the 17 peril types listed in HO-2. It is normally the responsibility of the owner's association to insure the structure (walls, roof, etc.). Be sure to check the master policy for exclusions. You might need to cover the construction and improvements within the outer shell of your building.

Not one of the policy types listed will provide coverage for loss from a flood or earthquake. This might not be important to you if your home isn't located in an area that is prone to either. If, however, your home is at risk, flood and/or earthquake insurance might be the smartest investment you'll ever make.

Federal flood insurance, purchased through your insurance agent or company, is the only guaranteed flood insurance coverage available for your home. Many people are reluctant to buy flood insurance because they believe that Federal disaster aid, available during and after a flood, will reimburse them for loss. This is not the case. Federal Emergency Management Agency disaster aid is available only during presidentially declared disasters. Moreover, Federal aid might be in the form of a loan that you must pay back with interest. Flood insurance policies pay claims whether or not a disaster is declared.

For earthquakes, your best insurance is preparation. Making sure the foundation is in good shape, the frame is bolted to the foundation, the water heater is strapped and the structure is in good condition is your best defense. Unfortunately, even the best-prepared homes can sustain significant damage. If you live in an area where earthquakes are a way of life, look into earthquake insurance. It is costly and often comes with a large deductible. Where a standard homeowners' policy might have a $500 deductible, the deductible for earthquake insurance can range from 5 percent to 15 percent. Using 10 percent as an example, that would equate to a $20,000 deductible on a $200,000 house. The lower the deductible, the greater the cost of the insurance. Generous discounts are offered where earthquake retrofitting (bolting, strapping, etc.) has been performed.

Which policy best suits your needs? Enlist the services of a reputable insurance agent who can relate the coverage options. You can opt for a "replacement cost policy" which means the insurance company will pay the cost of replacing an item (less deductibles) rather than simply offering its depreciated current value.

Don't forget a big part of being prepared for a disaster is ensuring that you have a full inventory of the construction elements of your home and its contents. Take photos or videotape each room. Pay special attention to details such as appliances, doors, trim, cabinets, flooring, ceiling treatment and other decorative finishes. Also, be sure to open cabinet and closet doors to photograph the contents.