If you're a homeowner and you've bought home insurance, you probably think you're covered. There are some things you might not realize, though. For starters, you may not be protected against all the calamities you've imagined. Earthquake? That might be excluded. (I myself am contemplating adding earthquake insurance to my coverage, even though I don't live in a high-earthquake-probability area. I know that bad earthquakes can happen in unexpected places.)

Another surprise regarding your home's insurance is that if you're unfortunate enough to need to file a claim, things might not work out as you expected. After writing about whether one should pay off a mortgage or invest for retirement, I heard from a Fool reader who had an eye-opening story to share:

"This is by way of a warning to those contemplating paying off their mortgages. I lost my upscale, paid-off house and everything in it in 1995 in a horrific California forest fire that consumed 43 other homes. Fire was so intense it even destroyed the concrete foundations. I was fully insured (or so I was told by [my] agent) for dwelling replacement cost regardless of the building limit. The contents limit was 75% of the building limit. Extensive photos of house and contents had been kept off-premises.

"Rule No. 1: Especially when it comes to major losses, you're lucky to get 80-85% of the actual replacement cost of your home or your contents. Often you'll get less. Translation: At a minimum, replacement of your home and contents to their pre-fire loss will give you, as a practical matter and despite insurance company advertisements or promises, an equity haircut of at least 10-15%. And that's if you're lucky.

"Why? The vast majority of those who've dealt with insurers will tell you that between insurance company computer programs, incentive-ized claims representatives and trusted hired-gun lowball estimators, your claim will be challenged and clipped at every conceivable opportunity regardless of how accurate your estimate may be. Add to that what become multi-faceted delays, insurer intransigence (they will call it something else) and frustrations in dealing with a major loss claim and chances are you'll take even less 'just to get it over with.'

"The bottom line few think about is that when you own 100% of the house, you also own 100% of the risk of loss. By trying to insure 100% of a possible loss, especially a major loss, you've transferred that entire risk of loss to the insurance company. In the real world, the insurer will do everything it can to pay less, which usually means it will pay 100% of its own, much lower, estimate of your insured loss. If you're lucky. And that's only after the passage of much time and considerable travail."

This is depressing information, but perhaps it can help you make sound decisions about protecting yourself from losses and allocating your money. If you think that this reader's story is unusual, note that Bob Pettyjohn, a deputy fire marshal in Illinois with 35 years of fire-service experience, was quoted in a news story saying: "I've never heard anybody tell me they had a good experience recovering from a loss." He added: "If you want to come out well on your settlement, you better have some documentation. It's your word against the insurance company's. If everything goes up in flames, it's going to be hard to prove," he said.

Learn more about the not-exciting-but-still-critical topic of insurance in our Insurance Center. You may not have thought about some kinds of insurance, such as disability or long-term care insurance, but they're vital for many people. And, of course, properly insuring your property is vital, too. Take a little time to learn more, and you may be very happy you did.

These articles may also be of interest:

And if you're in the market for insurance, another way to inform yourself about options is to spend some time at the websites of insurance companies. According to SNL Financial, the 10 largest insurance companies (as of Sept. 30) are:

  • American International Group (NYSE:AIG)
  • Berkshire Hathaway (NYSE:BRKa, BRKb)
  • UnitedHealth Group (NYSE:UNH)
  • WellPoint (NYSE:WLP)
  • MetLife (NYSE:MET)
  • Allstate (NYSE:ALL)
  • Prudential Financial (NYSE:PRU)
  • St Paul Travelers (NYSE:STA)
  • Aetna (NYSE:AET)
  • Hartford Financial Services (NYSE:HIG)

Longtime Fool contributor Selena Maranjian owns shares of Berkshire Hathaway.