4 ways insurers cut your coverage

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There are two ways that insurance companies make homeowners insurance more costly.

The first is to raise the premiums -- and they've certainly been doing that. Many homeowners along the Gulf of Mexico and Atlantic coasts are paying twice as much as they did before Hurricane Katrina struck in 2005.

The other, more subtle way is to reduce the coverage a policy provides. Many homeowners aren't aware of the changes until they file a claim and discover how little they'll be paid.

Here are four changes insurance companies are imposing to limit their liability and push more costs onto homeowners:

Sneaky change 1. Instituting separate disaster deductibles.

After Hurricane Andrew in 1992, many insurance companies changed the deductible for natural disasters, primarily earthquakes and hurricanes, but this also can include tornadoes.

Instead of requiring the policyholder to pay the first $1,000 in damages -- or some other fixed amount -- insurers began requiring them to pay 1% to 5% of insured losses.

"That's a fairly big change, and some people are unaware of it," says J. Robert Hunter, director of insurance for the Consumer Federation of America.

It results in bigger out-of-pocket expenditures when policyholders can least afford it, after a natural catastrophe.

Sneaky change 2. Putting new limits on replacement costs.

After a major storm with widespread damage, demand for construction materials and labor surges because everyone is clamoring for repairs at the same time.

A home that might cost $100,000 to rebuild in normal times could cost closer to $150,000.

Insurance companies used to guarantee that they would shoulder the replacement cost, no matter what it might be. Now, they'll cover a flat amount stated in the policy -- and only that.

State Farm allows a 20% leeway, Hunter says. So if the policy estimates it will cost $100,000 to rebuild a home, it will pay up to $120,000. Hunter is not aware of any other company that will do even that.

The change can force policy owners to spend tens of thousands of dollars to get their homes rebuilt.

Sneaky change 3. Eliminating building code coverage.

Homeowners policies used to cover improvements required to conform to new building codes or other laws.

No longer.

Now, most insurers require you to buy a law and ordinance rider, which can cost several hundred dollars a year.

Sneaky change 4. Adding anticoncurrent causation clauses.

Let's say your home is damaged by wind and flooding.

Wind damage is covered by homeowners insurance. Flood damage is not. You need a separate, government-backed flood policy for that.

It used to be that insurers gave policyholders the benefit of the doubt and picked up the repair bill.

Now, insurers are refusing to pay if the source of the damage is unclear.

That became a huge issue after Katrina, when thousands of homeowners suffered both wind and flood damage, resulting in many unresolved lawsuits.

How do insurance companies get away with making these kinds of changes to your policy without you realizing it?

"They usually send you a letter. The problem is, people don't read them," Hunter says. They'll include "a paragraph in the middle of page seven of the letter, indicating that your deductible has been changed to $10,000 from $500," he says.

To guard against surprise changes to your policy, it's important to read carefully any material they send you. Even if it's a 10-page letter, look at it closely. It may contain important information about changes to your policy.

It's also a good idea to sit down every year and do a checkup with your insurance agent to make sure you're aware of any changes, says Michael Barry, vice president of media relations at the Insurance Information Institute, a trade group.

If you've upgraded your home by making renovations or purchasing new appliances, you'll want to be sure these changes in your home's value are reflected in your policy.