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Stress-test your insurance coverage

Most people don't find out their insurance was inadequate until it's too late. Here's how to gauge the strength of your safety net before life does it for you.

By Insure.com

Insurance is meant to save you from financial disaster. But do you have enough of it -- and the right kind -- to help in a crisis? Put it to the test in the following scenarios.

Car accident stress test

Collision coverage: Let's say you ram your car into something and cause extensive damage to your vehicle. Fortunately you carry collision insurance.

About 72% of drivers carry collision coverage, according to the Property Casualty Insurers Association of America.

If you crash your car without collision insurance, you must pay the repair bills yourself or, if your car is beyond repair, foot the bill for a replacement vehicle.

Deductible: But what if you've chosen a deductible for collision coverage that you can't afford to pay?

State Farm, the nation's largest insurer, says customers have been gradually shifting to higher deductibles over the past few years. That means you pay more upfront costs, and, if your deductible exceeds repair costs, you pay for all the repairs.

Dan Young, the senior vice president of insurance relations for Carstar, which has about 280 collision-repair centers in the U.S., has seen increasing numbers of customers who are unable to afford their insurance deductibles. "Even for accidents reported and paid for, with insurance checks in hand, the customer can't afford their portion of the loss, so it's not being fixed."

Young reports that customers who can afford only partial repairs choose to put their money toward the mechanical fixes but not the body work.

Liability coverage: Now let's say you crash into someone else. If you cause a car accident that damages someone else's property or causes injuries, your liability insurance pays out.

But if you carry only your state's minimum for liability coverage, you could be on the hook for some whopping bills. The injured party can come after your assets for damage amounts above your insurance limits.

The Insurance Information Institute recommends liability coverage of 100/300/50 (translating to $100,000 for injury liability for one person, $300,000 for all injuries per accident and $50,000 for property damage).

But state minimums are far below recommended amounts. Florida minimums are 10/20/10. California minimums are 15/30/5. According to the insurance institute, in 2007 the average bodily injury liability-claim payment was $12,296.

Uninsured motorist coverage: Now let's imagine an uninsured motorist crashes into you, and fortunately you carry uninsured motorist coverage.

In these economic times, it's more important than ever to protect yourself against other drivers who fail to maintain proper coverage, or any coverage at all.

The Insurance Research Council estimates that one in six drivers will be uninsured by next year. Florida's uninsured rate was 23% in 2007, and you can bet it's gone up with the economic downturn. Higher still are uninsured populations in New Mexico (29%), Mississippi (28%), Alabama (26%) and Oklahoma (24%).

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Flood stress test

Water, water everywhere: Let's say you carry home insurance but not flood insurance, because you don't live near a body of water and you've never seen a flood in your neighborhood.

Water is a common cause of home damage, but home insurance doesn't cover flooding. Consider this: The National Flood Insurance Program, which offers flood policies nationwide, says one-third of all claims it pays are for policies in "low-risk" communities.

Additionally, the program estimates that 2 inches of water in your house would cause $7,800 in damage. Try out the program's Cost of Flooding tool for other estimates.

The same goes for earthquakes: Standard home insurance policies don't cover earthquakes. For that you need a separate quake policy or an endorsement to your home insurance. And it's not just Californians who should be on guard: According to the insurance institute, earthquakes have occurred in 39 states in the past 100 years.

Continued: Divorce stress test

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