Taking Inventory of Your Home
To Get Adequate Insurance

My husband Gerry and I have completed a number of major home renovations since we bought our house from his dad back in 2000 -- we've tackled everything from a new fireplace in the family room to a top-to-bottom kitchen overhaul.

And we're not done yet, by a long shot. In addition to a fairly extensive backyard remodeling we'll be starting soon, we plan on gutting our main bath and adding a room downstairs for a home office.

We're renovating not just because we crave more space, but because this is the home my husband grew up in, and improving it makes us proud. Gerry often tells our six-year-old son Gerald that one day he'll raise his own children in our home -- and we hope he does.

We've made a lot of upgrades in just a few years, at considerable cost -- roughly $50,000 in building material and labor costs, and thousands more in home décor and electronics. I hadn't given much thought to figuring out the actual cost, until I spent a few hours with Quicken money-management software I recently purchased.

Taking a Tour

Quicken's 2006 program includes a home-inventory checklist that can help you determine whether your home's contents are adequately insured for replacement value. The last time I'd done any kind of home inventory was five years ago, when we were shopping for better rates on homeowners insurance. Our home has increased vastly (in both market value and contents) since then, and there's a chance we might not have enough insurance to cover it all.

When it comes to protecting our home, I'm not taking chances: As a kid, I watched in terror as a flame from our small kitchen stovetop ignited a grease fire in a pan as my mother made dinner. The fire consumed most of our kitchen cabinets in what seemed like seconds, causing hundreds of dollars in damage -- an expense my already cash-strapped parents could least afford.

Accidents aren't my only concern. While our neighborhood isn't deemed a flood risk, we do live along the Eastern seaboard, relatively close to the ocean. I can still recall the destruction Hurricane Gloria wreaked in this area when my National Guard unit was called for duty in 1985. And over the last five years two of our neighbors have suffered extensive damage to their homes after trees fell on them during spring and winter storms -- and another neighbor had an alarming near-miss just last month.

Given all this, now's as good a time as any to make sure we're adequately insured. To begin, I decided to update our home inventory. Using Quicken's room prompts -- a dropdown menu lists rooms that can be found in a home, and separately lists items that would typically appear in those rooms -- I began entering our house's contents item by item. Living room: sectional, entertainment center, bookcase, drapes, wall art … you get the idea. Next, the software assigns replacement cost and actual cash value (or resale value) to each item.

We have replacement-cost coverage, rather than an actual cash-value policy, so our insurance company will replace any damaged or stolen items with new ones. Actual cash-value policies can be less expensive, but they factor in depreciation. The payout on a claim can vary drastically depending on which policy you choose: As this depreciation calculator shows, a 10-year-old 55-inch big-screen TV that cost $2,000 new has an actual-cash value today of just $333 -- or about 30 inches of new TV screen. With replacement-cost coverage, you'd get a comparable 55-inch set.

As I plugged in the numbers, it seemed to me that some of the values Quicken assigned were too low, particularly when it came to furnishings. For example, the $900 assigned to replace our sectional falls far short of the $1,500 we paid for it back in 1999. (Quicken does allow you to assign your own values to individual items.)

How to set those values? Richard Burr, president of the National Association of Public Insurance Adjusters, recommends homeowners spend time looking up current prices for their more-expensive furnishings, particularly if the items are customized. "With leather or fine woods, you're going to want to find out what it would cost not just to replace the piece of furniture but to replace it as it was," he says.

We don't own extremely expensive jewelry, fine art, or collectibles -- unless you count Gerald's fleet of MatchBox cars. If we did, we'd need to add a provision called a "personal-articles floater," which offers broader coverage than standard homeowners policies. (The amount you'll pay depends on a host of factors, including the items, where you live and your insurer.) When insuring these types of valuables, it's a good idea to have them appraised every three to four years to make sure your insurance keeps up with the appreciating value, Mr. Burr says.

Add It Up

After mentally toting up all of the contents in our home and plugging the information into Quicken, I took a tour of our home, jotting down items I'd missed. I took along our digital camera, taking snaps of each room that will be filed away with our homeowners policy in the event they're needed to verify a claim. (It's a good idea to videotape your home as well, but our camera is on the fritz.)

Some of the most valuable things we own are impossible to put a price tag on: Gerald's framed preschool watercolor art, a small handmade dresser given to me by a beloved uncle when I moved into my first apartment, and our son's most-prized possession -- his Little League trophy. For Gerry, the home itself, chock-a-block with memories, is priceless.

Photos taken and list complete, I plugged in the numbers and had Quicken tally the total cost of all our household items and produce a "total replacement cost" figure. (Ballpark estimate: $142,500.) A quick check of my policy's declarations page shows our household contents are covered up to $139,500. So we are underinsured, though not by much.

Bottom line: I didn't need to boost our coverage significantly, so our annual premium remains about the same. (Just under $600.)

I keep copies of all of these documents and photos with my homeowners policy in our home firebox. We used to keep our sensitive financial documents in a safe-deposit box at our bank, but I found that inconvenient because we needed access to the documents far more frequently than I'd expected. So last year we upgraded our small home firebox to a larger safe that protects contents from fire up to 1700°F for up to an hour. The Red Cross recommends that home safes be fireproof and lockable, yet light enough to carry in an emergency. We keep all of our sensitive documents locked inside: birth and marriage certificates, passports, Social Security cards, insurance documents, car and boat titles, our will, Gerald's college-savings bonds, the deed to our home, and $1,000 in cash in the event a disaster temporarily knocks out our ATM network, leaving us short on cash.

I also keep a copy of the home-inventory file (saved as a PDF) on my work computer, along with my policy information and other documents. That's better than no backup at all, but I should find a better way to safeguard such documents outside my home. (I've only just started thinking about this, so I'm eager to hear any ideas.)

If you don't have a home safe, consider using a bank safe-deposit box or entrusting your sensitive financial documents to a parent or grandparent. Trust is key: Nearly half of identity-theft victims who knew how their information was stolen found the theft was perpetrated by friends, neighbors, in-home employees, family members or relatives, according to a recent survey by Javelin Strategy and Research. Also, make sure you are guaranteed access to your documents in an emergency and know how they are being stored -- you want them in a locked safe, not cardboard boxes in an attic.

How frequently you should update your home's inventory depends on how you spend, says Robert Hunter, director of insurance at the Consumer Federation of America. "Generally you'd want to add any big purchases to your list as you make them, and revisit your list and take new photos every three or four years," he says. "If you're at an age where you're not acquiring a lot of things, such as in retirement, you'd update it less frequently."

A good tip: If disaster strikes before you were able to inventory your home, ask close friends and relatives to check their photo albums for snapshots they may have taken in your home. Those pictures can help you substantiate insurance claims.

Email your comments to rjeditor@dowjones.com.