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Red flags that your homeowners insurance needs updating

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If you own a home, you have homeowners insurance. What you may not know is that, like your home, your insurance policy needs maintenance and updating. Failing to update your homeowners insurance policy could cost you big bucks in the long run.

But how do you know when it's time to update your insurance policy? Generally speaking, significant upgrades to your home or changes in your life mean it's time to do an audit of your insurance coverage. Here are some situations where taking another look at your insurance policy is necessary:

1. You want to remodel your home.

Think remodeling your 5-by-8-foot powder room is no big deal? Think again. Even a small renovation like this can have a big impact on your homeowners insurance. Consider this: If your contractor and subcontractors don't have worker's compensation policies, they could sue you if they're hurt on your property. That means you could end up footing the bill for medical expenses, any necessary rehabilitation and wages lost while out of work.

Be sure to verify the insurance coverage of any and all contractors working in your home. The folks at Travelers Insurance say you should contact your insurance company if you find your contractors' coverage is insufficient. Ask them about extending the limits of the liability portion of your homeowners' insurance policy to cover you if someone is hurt on the job.

Homeowners insurance liability limits generally start at about $100,000, but some experts recommend that you purchase at least $300,000 worth of protection. If you want even more, consider purchasing an umbrella insurance policy, which provides broader coverage and higher liability limits. In many cases, you'll save money on the coverage by purchasing an umbrella policy, "regular" policy and auto or life insurance from the same agency.

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If you're putting on an addition or making significant upgrades to your home, be sure to contact your provider before beginning the project. If that new addition burns to the ground before you've increased your coverage, you could be on the hook for the cost of rebuilding it.

2. You've gotten married – or divorced.

According to the Insurance Information Institute, these are two big life changes that warrant changes in homeowners insurance – albeit for different reasons.

If you're getting married, you'll be combining two households' worth of stuff, including potentially valuable personal belongings. You may also get some pretty expensive wedding gifts, which could necessitate more coverage. Take a detailed home inventory of your belongings, and discuss it with your agent. This inventory will give you an idea of how much coverage you will need as you embark on your new life together. (One thing to consider: The single policy will probably be less expensive than paying for homeowners insurance for two separate homes.)

This inventory is also helpful in the event of a divorce, since you can revisit it to determine the appropriate division of property. If your marriage ends, be sure to contact your provider for help unwinding auto, homeowners and life insurance policies.

A standard homeowners insurance policy includes coverage for your personal belongings, both on and off the premises (unless you've decided against off-premises coverage). Most companies provide coverage for 50 to 70 percent of the amount of insurance you have on the structure of your home, the Insurance Information Institute says. That means that if you have $100,000 worth of insurance on the structure of your home, you have $50,000 to $70,000 worth of coverage for your belongings.

An inventory of your belongings will help you decide if this coverage is enough. Keep in mind that expensive items, like jewelry or high-end heirlooms, might be covered only up to a certain amount. Once you've taken an inventory of your belongings, contact your insurance provider to decide whether or not you need additional personal property coverage based on the cost of your belongings.

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3. There's a new (furry) addition to the family.

Bringing a new puppy home is exciting, but Fido could be a financial threat if you're not adequately covered. According to Insurance Information Institute data, dog bites accounted for more than a third of all homeowners liability claim dollars in 2011 – the latest data available – for a total of $479 million.

Typically, homeowners insurance policies cover dog-bite liability as part of the standard coverage. But if your limit is $100,000 and the claim costs you $300,000, you're responsible for that $200,000 – whether it's legal fees or damages.

Since the personal liability coverage available through a standard homeowners policy isn't always enough, the institute advises dog owners to consider purchasing a personal excess liability policy, otherwise known as a personal umbrella policy – or PUP. This policy, which, according to Allstate, can cost as little as $1 per day based on the state you live in, kicks in when your regular insurance hits its coverage ceiling.

If you're bringing home a dog, it's worth it to discuss getting a PUP, too – it could save you thousands of dollars if Fido bites one of the neighbors.

These aren't all the scenarios which should prompt an insurance audit. As a general rule, it's worth looking over your policy once a year – even if you haven't gone through any huge life changes. When in doubt, contact your provider to discuss your coverage options.

Ilyce Glink is an award-winning, nationally syndicated real estate columnist, blogger and radio talk show host, and managing editor of the Equifax Finance Blog. Follow her on Twitter @Glink.

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