As Recovery Looks Weak, Stocks Take a Deep Dive

Signs of weakness in the American economy pushed Wall Street to its worst day in an already bad year.

The catalyst on Monday was the release of a survey of the manufacturing industry, which fell in January to its lowest level in eight months. Stocks slid, with the Standard & Poor's 500-stock index ending the day down 2.3 percent — its sharpest decline since June 20. The benchmark index is now off 5.8 percent from the record close it set on Jan. 15, and down to its lowest level since last October.

The discouraging manufacturing numbers — and similarly disappointing figures on car sales — were attributed to recent bad weather. But together they were enough to cause concern among investors that talk of a strengthening economic recovery may have been too optimistic.

"There's no question that some of the economic data we've seen recently just hasn't been as strong as hoped for," said Tim Ghriskey, the chief investment officer at the Solaris Group, an asset manager. "Perhaps expectations of economic improvement got ahead of themselves."

Spencer Platt/Getty Images Traders at the New York Stock Exchange Monday, when the S.&P. 500-stock index and the Dow were down more than 2 percent.

Markets around the world have been vulnerable to bouts of turmoil since the Federal Reserve started scaling back the bond-buying programs it has used to stimulate the United States economy, the world's largest. As the Fed starts to take its foot off the accelerator, questions about the strength of global growth have mounted.

In recent weeks, those questions have been largely focused on slowdowns in the emerging economies in Asia, Africa, Europe and Latin America, which have long relied on the low interest rates promoted by the Fed. Sell-offs in places like Turkey and Russia have caused concern that these countries could eventually be as a drag on the United States economy.

Stocks plunged 3 percent on Tuesday morning in Tokyo. But on Monday, it was the United States that helped lead the world down. Stock markets across Europe fell sharply almost as soon as the Institute for Supply Management's survey of the manufacturing sector was released at 10 a.m. The index fell to 51.3 from 56.5 in December. A number above 50 indicates growth, but most economists had expected much stronger expansion.

The most disappointing number in the survey came from the question asked about new orders, which is seen as a forward-looking indicator. That dropped to 51.2 from 64.4 last month.

General Motors, meanwhile, reported a 12 percent drop in sales in January, and Ford Motor said its sales fell 7 percent.

Many economists, though, were cautioning investors not to take the new data too seriously, given other recent signals pointing to continuing economic growth, and the many warnings about temporary weather-related issues in Monday's data.

The Institute for Supply Management said in its report that several businesses responding to the survey cited "adverse weather conditions as a factor negatively impacting their businesses in January, while others reflect optimism and increasing volumes in the early stages of 2014."

Investors, for their part, largely described the market's extreme reaction as a somewhat expected rebalancing after the big gains that American stocks experienced last year.

"There were a huge amount of profits not taken at year-end," said Ed Yardeni, an independent economic analyst. "Everybody was waiting patiently for the market to go down."

After the nearly 30 percent rise in the S.&P. 500 last year, many traders say they have been ready to sell at the first sign of a downturn. That has led to an unusually volatile stretch in the markets. The Dow Jones industrial average has risen or fallen at least 100 points on 11 days this year.

The Dow ended Monday down 2.1 percent, or 326.05 points, at 15,372.80. The Nasdaq composite index was 2.6 percent, or 106.92 points lower, at 3,996.96 — its first close below 4,000 since Dec. 12. The S.&P. 500 finished down 40.70 points at 1,741.89.

The move out of stocks has reversed what had been a growing shift away from the bond market. Now investors are once again seeking the safety of bonds, helping to push the yield on the benchmark 10-year Treasury note to 2.58 percent from 2.65 percent late Friday and down from around 3 percent since the beginning of the year. The yield is at its lowest point since late October. The price of the 10-year note, which moves in the opposite direction, rose 18/32, to 101 15/32.

Despite the relative complacency on many trading desks, strategists are now carefully watching for any new signs of a slowdown in the American economy. The most important indicator will come this Friday, when the monthly employment report is released. Last month, the number of new jobs created came in far below the level anticipated. That too was written off as a one-time anomaly, but together the recent data has economists questioning whether there is a more significant turn.

"As for market nerves, the latest batch of data does not bode well for Friday's employment report, which means investors may yet anticipate further volatility ahead of its release," Andrew Wilkinson, the chief market analyst at Interactive Brokers, wrote in a note to clients.

Still, many strategists are still expecting the recent signs of weakness to go away with the bad winter weather. "It certainly feels like there's nothing that has fundamentally changed to set off a bear market," Mr. Ghriskey of the Solaris Group said.

A version of this article appears in print on 02/04/2014, on page B1 of the NewYork edition with the headline: As Recovery Looks Weak, Stocks Take A Deep Dive .

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Study: Patients need training on new health insurance

A new look at Medicaid expansion in Oregon found that it can take months or years for an enrollee to make improvements in their health.

De. Shaun Lan performs a skin exam on Kathryn Flack at Legacy Medical Group Northwest Clinic in Portland, Ore. Lan works with patients in the state's expanded Medicaid program, as well as with privately insured patients.(Photo: Rick Bowmer, AP)

Story Highlights

• Many new Medicaid beneficiaries in Oregon thought health insurance was similar to car insurance
• Study in "Health Affairs" found that Medicaid patients worried about costs
• More education is needed to help new insurance customers, researcher says

WASHINGTON — New Medicaid patients in Oregon failed to use their benefits effectively because they did not understand how to use insurance or health care, according to a study released Monday in the journal Health Affairs.

As a result, researchers told USA TODAY, patients did not receive preventive health screenings, schedule appointments to manage chronic illnesses or use their new insurance coverage for anything beyond medical emergencies.

These findings, researchers said, should be considered in future health policy decisions, particularly those related to the Affordable Care Act and Medicaid expansion.

"There's this idea that health insurance is like car insurance: You use it when something really bad happens," said lead author Heidi Allen, an assistant professor at the School of Social Work at Columbia University and one of the co-investigators in the Oregon Health Insurance Experiment.

In 2008, Oregon used a lottery system to expand its Medicaid program. An initial study found no "statistically significant improvements" in physical health in the first two years, which meant no decrease in costs associated with poor health. A second study found increased emergency room use.

"After two years, we weren't really able to detect any differences, even though we knew people were using more care," Allen said. "Conservatives took that as evidence that Medicaid wasn't good insurance and that it shouldn't expand."

Instead, Allen found in her review of in-person surveys of 120 new enrollees that:

• People assumed if they used their insurance for something minor, like a physical, someone who needed care more might not get a turn.

• People knew they were using taxpayers' money and didn't want to waste it.

• Patients who knew they only had emergency dental care assumed that extended to all health care, so they went to the emergency room and not a regular doctor's office.

• Medicaid beneficiaries did not understand that preventive screenings could save the system money in the long term, or simply didn't know they should get an annual exam.

• People were afraid of how much they would be required to pay if they saw a doctor.

"This is a good opportunity to socialize people who may not have had health care for a really long time about how we want them to use health care," Allen said of her findings. "I see an opportunity for us to help patients understand, 'When this happens, this is where we want you to go.'"

Forty percent of new Medicaid enrollees didn't seek care very often because they didn't understand how the program worked, Allen said. When they did seek care, it was usually in an emergency. Nearly a third of these less-frequent users avoided care because they didn't know how much they would have to pay.

The other 60% of the 120 new enrollees surveyed used their insurance more often, but many also reported having difficulty understanding their benefits. Only about 10% used preventive care — and those consumers said they understood the benefits of preventive care. Ten percent said they saw immediate, marked improvement in their health because they were able to afford medications or a needed surgical procedure.

Of the regular users, just under half said they didn't feel like their doctors understood them or that they had very poor health that continued to get worse. Thirty-nine percent of the regular users said their health improved with insurance, but it took time. In those cases, the doctor tended to address the most-pressing health concerns first, and then work later on lifestyle changes that could help overall health.

"For the people that used health care on a regular basis over the three years, there was a group of people whose lives were just transformed," Allen said. "Those are people who had been waiting for surgeries, or needed a medication and felt so much better."

In one case, a 33-year-old man with debilitating back pain from a car accident walked with a cane. After two years' worth of treatment, he was able to walk without the cane, lost 80 pounds and stopped eating fast food. "No one would hire me walking with a cane," the man told the researchers. He said much of the weight loss came after he was able to get a job where he walked a lot.

Follow @KellySKennedy on Twitter.

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Having insurance now more important than ever

Sam was in court the other day, and while waiting for his case to get called, he watched a woman who was cited for driving without insurance talk to the judge.

The judge asked her if she had auto insurance and she said she did. "Did you have insurance on the day you were cited?"

"No," she replied.

"Well," he said, "the law is clear. You have to pay a fine plus court costs." The total came to $275. The judge gave her 30 days to pay it. She meekly asked if she could have more time, or pay over time. The judge extended the payment term to 60 days.

But what was clear to Sam is that she didn't have insurance because she couldn't afford it. Not because she didn't want to have it. It was also clear that this woman had no idea how she would be able to afford the court costs she had just been assessed. Sixty days might have just as well been six minutes.

Almost all states require drivers to carry car insurance that at least covers the person you hit. But states don't generally dictate whether you need homeowners' insurance. If you're buying a home and need a mortgage, the mortgage company will require you to carry a homeowners' policy for at least as much as the mortgage amount.

While you can't close on your mortgage without proof of insurance, ma ny homeowners' (who aren't paying premiums monthly along with their real estate property taxes into a tax and insurance escrow) allow their policies to lapse. It isn't because they don't want to have homeowners' insurance. It's because they either forget to make the payments, or more typically, they can't afford the premiums.

Ilyce recently wrote about Sharon and Vince La Vigna, whose house was torched by a San Jose-based serial arsonist, in the early morning hours of January 11, 2014. Sharon was pulled from the fire by neighbors, just minutes before the roof collapsed.

The family didn't have homeowners' insurance. A few years earlier, Sharon lost her job. Vince is disabled, and they were scraping by on Social Security. Sharon and Vince had been making monthly payments to their insurance company when the company switched to an annual contract.

Sharon contacted her homeowners' insurance company and asked if she could pay in installments. The company said no, dropped her and the house was uninsured. Sharon and Vince had been looking for another affordable policy, hoping for the best.

Instead, an arsonist torched their home, and they lost everything.

Ilyce has received email from many people who want to help, and a fund has been established for those who are interested through YouCaring.com. But there have been plenty of readers who want to know why we aren't tougher on homeowners who let insurance policies lapse. As several emails put it, "Didn't they get what they deserve?"

We think that's a harsh attitude, as the vast majority of Americans struggle to get out from under the worst recession in 80 years. There are still three people unemployed for every job that's available. Many seniors who lost jobs, like Sharon, can't find replacement jobs that pay anything close to what they used to earn.

Paying over time has become the way many Americans afford the everyday costs of life, not even the extras like vacations. Homeowne rs' insurance, health insurance and auto insurance premiums are paid for monthly, or sometimes bi-weekly -- whatever chunks are affordable.

When your home is paid off, as the La Vigna's home was, homeowners' insurance is especially important. If you can't afford the coverage you have, you can try the following tips to lower your premiums or find an alternative policy that may be more affordable: Insure only the house and contents, not the land on which it sits; ask for a discount if you're a non-smoker, a senior or have home security devices; raise your deductible (even a $10,000 deductible is better than a $300,000 loss); and, bundle your car or life insurance policies together with your homeowners' policy and buy it from the same insurance company.

Sharon and Vince are now living with their son. In the past few days, an arrest was made in the case. It's not like having their house restored, but it's something.

In the case of the uninsured driver, she could reduce her costs by raising her deductible or, if her car was old, by dropping that portion of the insurance coverage relating to her car coverage but keeping the liability portion. Sometimes having that coverage and driving is better than driving without insurance.

(Ilyce Glink is the creator of an 18-part webinar and ebook series called "The Intentional Investor: How to be wildly successful in real estate," as well as the author of many books on real estate. She also hosts the "Real Estate Minute," on her YouTube.com/expertrealestatetips channel. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce and Sam through her website, http://www.thinkglink.com.)

(c) 2014 ILYCE R. GLINK AND SAMUEL J. TAMKIN. DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC.

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Older workers may still need life insurance

General rule of thumb regarding how much you should have may not apply to seniors, but there is still a need.

Brenda Major, who said she had a pre-existing condition that made it impossible to find insurance that would cover her until the Affordable Care Act, is examined by Dr. Fernanda Mercade during a routine checkup at the Jessie Trice Center for Community Health clinic in Miami.(Photo: Joe Raedle, Getty Images file)

Older Americans are working longer or least plan to work longer than ever before.

The reasons, of course, vary. Some need to work, while others want to keep working, and some do so out of want and need. No matter the reason, experts say older workers should re-evaluate whether they have enough life insurance while they are employed and plug any gaps in their risk-management plan.

"If seniors are planning to continue working because they need the income, and not just to stay active, then they should be protecting against the possible loss of that income during this time period," says Walter Zultowski, a principal of WZ Research + Consulting, a market research and consulting firm specializing in the life insurance and financial services industries based in West Granby, Conn. "This is especially true if these seniors primarily owned term which may now be expiring, and/or have reduced group life benefits due to a job change or reduced benefits from their employer."

The general rule of thumb that you need to five to seven times your annual income in life insurance, likely doesn't apply to older workers says Kenn Tacchino, professor of taxation and financial planning at Widener University and editor of the Journal of Financial Service Professionals.

Back-of-the-napkin

Instead, Zultowski says those looking for a back-of-the-napkin number might consider multiplying their compensation by the number of years they plan to work. So, if you plan to earn $50,000 over five years consider buying a five-year term life insurance policy with a death benefit of $250,000.

As you contemplate buying life insurance to plug any gaps, don't forget to factor in any life insurance already provided as an employee benefit. Odds are high that you'll have a group-term life insurance policy at work that pays one times your annual compensation. Nearly nine in 10 (86%) of employers offered employer-paid group-term life insurance, according to 2013 Society for Human Resource Management (SHRM) survey. Plus, as part of your employee benefit package, you might have the chance to buy a life insurance policy that covers up to five or more times your salary.

When calculating your life insurance needs, remember this too: Under the Age Discrimination in Employment Act of 1967 your employer-provided life insurance death benefit after reaching age 65 can be reduced and often is. Experts says that reduction must be based on the estimated increased cost to provide the coverage for older workers.

Now if you decide to purchase life insurance outside your employee benefit plan, don't fret about costs in the private market. Buying a policy with a relatively small death benefit for a short period of time isn't that expensive, according to Marv Feldman, the president and CEO of the Life and Health Insurance Foundation for Education (LIFE), a nonprofit group promoting the use of life insurance. For instance, a 65-year-old male who is in good health and doesn't smoke would pay about $160 per month for 10 years for a policy with a $250,000 death benefit.

Capital needs analysis

Rules of thumb and back-of-the-napkin calculation serve a purpose. But to determine the precise amount of life insurance you'll need in your older years, experts suggest completing what's called a capital needs analysis.

Doing this analysis does require some work, but it's a worthwhile exercise. To do a capital needs analysis, you'll need to calculate:

1. How much money will be needed at your death to meet immediate obligations, and

2. How much, though this can be a bit complicated, future income is needed to sustain your household, according to the LIFE Foundation.

The first amount takes into account all final expenses: uncovered medical bills, funeral and estate-settling costs, possible federal and state estate taxes, outstanding debts including credit cards and auto loans, mortgage balance, and college costs to name a few, according to the LIFE Foundation.

Feldman also says it's wise to factor into this first amount any financial bequests you might have. In the wake of the 2008 economic crisis, many Americans were unable to fulfill their legacy desires because they had depleted their assets, he says.

The second amount, meanwhile, ought to factor not only income from Social Security, pension plans, income annuities, required minimum distributions, and the like, but it should include the surviving spouse's reduced living expenses, if that's the case, and the possibility the surviving spouse will live a long time.

As part of this calculation, consider any lost Social Security income after a beneficiary dies. Typically, the surviving spouse's Social Security benefit is reduced, though it varies, anywhere from one-third to one-half that of the primary wage earner. "That could be a substantial loss of income and benefits that needs to be replaced," says Feldman.

Plus, estimate how much income a surviving spouse might need over the course of his or her lifetime. Life expectancy tables suggest that a couple, both age 65, have a "last-to-die" life expectancy of 27 years, according to a blog by Ernest Valliere, the owner of EPV Marketing Consultants, Providence-based consulting firm. That means the surviving spouse might, on average, live to age 92.

Of note, the LIFE Foundation has a capital needs calculator on its website, lifehappens.org.

Another factor to consider: Savvy insurance professionals can help you determine whether it makes sense to purchase a whole life insurance policy and then choose a single life pension payout instead of a joint-and-survivor pension payout. According to Tacchino, this strategy can be better economically than choosing a joint-and-survivor pension and not buying a life insurance policy. Of course, you have to crunch the numbers to be sure.

Robert Powell is editor of Retirement Weekly, a service of MarketWatch.com. Email him at rpowell@allthingsretirement.com.

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T.A. Garrison's Debut Book 'Perspectives in Criminal Justice' is Released

T.A. Garrison, an Industrial Security specialist, continuing academic and devoted fiancé and mother, has completed her first book "Perspectives in Criminal Justice": a gripping and potent delineation of the efficiencies and deficiencies of the United States criminal justice infrastructure.

"Working in the field of criminal justice and having the opportunity to research and apply experience gave me a better understanding of the criminal justice system. I wanted to be able to change current foundations that the system is built upon and begin to incorporate community perspectives."

Published by New York City-based Page Publishing, T.A. Garrison's poignant tale provides interesting and novel insight into some of the most horrific crimes ever committed in the U.S.

Author T.A. Garrison goes beyond the headlines, the courtrooms and the local news and into the heart of what makes the modern American criminal justice system tick. By delving into some of America's worst nightmares - the Oklahoma City Bombing, the case of Ted Bundy and the shooting of Gabriela Giffords - she sheds light on how our police and court systems have evolved over the last century, and how much work there still is to do. See how forensics and DNA evidence have reinvented the entire field of detective work and have made degrees in technology almost as invaluable as instincts and interrogation rooms. With thought-provoking chapters on police departments versus private security; imprisonment versus rehabilitation and the battle against corruption, Garrison cuts to the heart of the matter to expose both the very best and the very worst of our justice system.

Readers who wish to experience this insightful work can purchase"Perspectives in Criminal Justice" at bookstores everywhere, or online at the Apple iTunes store, Amazon, Google Play or Barnes and Noble.

For additional information, review copies or media inquiries, contact Page Publishing at 866-315-2708.

About Page Publishing

Page Publishing is a traditional New York based full-service publishing house that handles all of the intricacies involved in publishing its authors' books, including distribution in the world's largest retail outlets and royalty generation. Page Publishing knows that authors need to be free to create - not bogged down with complicated business issues like eBook conversion, establishing wholesale accounts, insurance, shipping, taxes and the like. Its roster of authors can leave behind these tedious, complex and time consuming issues, and focus on their passion: writing and creating. Learn more at http://www.pagepublishing.com.

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In rural Georgia, federal health insurance marketplace proves unaffordable to many

ALBANY, Ga. — If Lee Mullins lived in Pittsburgh, he could buy mid-level health coverage for his family for $940 a month. If he lived in Beverly Hills, he would pay $1,405.

But Mullins, who builds custom swimming pools, lives in southwest Georgia. Here, a similar health plan for his family of four costs $2,654 a month.

This largely agrarian pocket of Georgia, where peanuts and pecans are major crops and hunters bag alligators up to 10 feet long, is one of the most expensive places in the nation to buy health insurance through the new online marketplaces created by the federal health law. The only place with higher premiums are the Colorado mountain resort areas around Aspen and Vail, a high-cost-of-living area unlike Georgia.

"We're not real happy with the way things are going in our neck of the woods," said David Hardin, Mullins's insurance broker.

All the dynamics that drive up health costs have coalesced here in southwestern Georgia, pushing up premiums. Expensive chronic conditions such as obesity and cancer are common among the quarter million people in this region. One hospital system dominates the area, leaving little competition. Only one insurer is offering policies in the online marketplace, and many physicians are not participating, limiting consumer choice.

Until these elements are brought under control, it will be challenging for the Affordable Care Act to fully live up to its name, not just here but in other parts of the country where premiums are high. Other expensive places include rural Nevada, parts of Wisconsin, most of Wyoming, southeastern Mississippi, southwestern Connecticut and Alaska.

In these places, government subsidies are shielding people with low and moderate incomes from the full cost of the premiums. Randy Gray, a flower shop owner in Albany, is paying just $32 a month, with taxpayers picking up the remaining $805.

But for those earning too much to qualify for federal financial help, the premiums can be overwhelming. A 60-year-old making $47,000 in Albany would have to pay a quarter of her income for the least expensive mid-level "silver" policy, the level most consumers are buying.

Even some people who qualify for federal assistance, such as Stacie Brown, owner of a pottery shop, are balking. The cheapest "bronze" plan for Brown, her husband and son would cost the family $300 a month but not begin paying medical bills until they exceeded the $6,300 individual deductible. The cheapest silver plan would cost $508 a month but not start paying until a $3,000 individual deductible was met. Her son's pediatrician was not in any of the networks, and that was the one medical service she felt sure her family would use.

Brown ultimately bought a $256-a-month Assurant Health plan for her son, sold outside the marketplace, which covers his pediatrician and unlimited office visits. She and her husband have decided to forgo coverage for themselves, even though they may face a tax penalty of $700.

"I can't afford the affordable health care," she said. "I don't know anyone in this area who can afford it, and I do pretty well in life."

All the ingredients for heavy health-care needs — both medical and socioeconomic — are common in the 12 counties of southwestern Georgia, which are being treated as a distinct region in the insurance market. One in four children lives in poverty, and one out of every three people here is obese. Babies are more likely than those in most parts of the country to have low birth weights, according to data compiled by the University of Wisconsin Population Health Institute.

The lowest premiums in the country are around Minneapolis, known for its healthy population. Yet other parts of the country face the same kinds of health challenges as southern Georgia and have significantly lower insurance premiums. In a cluster of five South Carolina counties that the University of Wisconsin data show have demographics similar to those in southwestern Georgia, the lowest-priced silver plan is 39 percent less expensive.

Many insurance brokers and residents place the blame for high premiums on the expanding Phoebe Putney Health System, the nonprofit group that runs six hospitals in southwestern Georgia. The Federal Trade Commission and Georgia's attorney general unsuccessfully tried to reverse Phoebe's 2012 acquisition of Palmyra Park Hospital in Albany because it made the system so dominant that they said Phoebe could essentially dictate prices. In a settlement, Phoebe was allowed to hold on to Palmyra, giving it 86 percent of the regional health-care market.

It's challenging to assess hospitals' prices here because, like most places, contracts between insurers and hospitals are kept private. Morgan Kendrick, president of Blue Cross and Blue Shield of Georgia, the only insurer in the marketplace, said Phoebe is "slightly more expensive" than hospitals in other markets, but the insurer has no other options.

"There are not many choices from the provider perspective," Kendrick said. "They deliver the care in that area, period, stop."

Joel Wernick, president and chief executive of the hospital system, said complaints of high prices are unsubstantiated. "We've not really raised prices or altered our prices in some time," he said in an interview.

But insurance brokers and health policy experts said that Phoebe's rates for private insurers are higher than they would otherwise be to make up for the money the system loses when it cares for the large uninsured population. Aside from MillerCoors and Procter & Gamble, there are not a lot of large employers that hospitals and doctors usually rely on for rich payments. "At the end of the day, if you're an institution this size and you've got a small commercial population, you've got to get that money from somewhere," said John Crew, a Savannah consultant to hospitals and physicians.

Almost 11 percent of Phoebe's bills were not collected because the services were provided to patients who couldn't or did not pay, according to the hospital's most recent audit.

In recent months, Phoebe has taken some steps to reduce its costs. Last year it cut 160 jobs and hired consultants affiliated with the Geisinger Health System, which runs a central Pennsylvania hospital group known for efficiency, to help identify ways to save money.

"We may have to start lopping off services that are not economically rewarding," said Doug Patten, Phoebe's chief medical officer. "We probably have been overly permissive in the past in saying, 'Yes, we will take care of you.' "

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communications organization not affiliated with Kaiser Permanente.

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How Much Home Insurance Should You buy?

The surefire way to protect your investment in your home and its contents from damage or destruction is by purchasing homeowners insurance. But there is no one-size-fits-all approach to shopping for a home insurance policy. How much you spend depends on how much property you have and how far you want the coverage to extend.

Your home insurance premium typically buys a package of six types of coverage:

• Dwelling. Pays for damage to the home itself and attached structures, such as an attached garage.
• Other structures. Pays for damage to fences, a freestanding garage and other structures not built onto the house.
• Personal possessions. Compensates for your lost or stolen stuff -- even when it's away from home.
• Loss of use. Picks up some of your living costs when your home is uninhabitable and is being fixed.
• Personal liability. Provides financial protection if you're sued and held responsible for injuries or damage to someone else.
• Medical payments. Takes care of the medical bills of anyone injured on your property.

Of these, the two main factors that will determine the cost of your insurance are your dwelling and your personal possessions, says Michael Barry, spokesman for the trade group the Insurance Information Institute. "The policy is really driven off of the dwelling protection number," he adds.

The amount of dwelling coverage you decide to buy should equal the full replacement cost of your home. For example, if a homeowner chooses to insure the structure of the home for $200,000, "that number is what I'm going to need in the event I have a total loss and I need to rebuild my current home in its current location with comparable construction materials," Barry says.

Home insurance rules of thumb

As a homeowner, you should have enough insurance to cover:

• The structure of your home.
• Your personal possessions.
• Additional living expenses, in the event you need to move during home repairs.
• Your liability to others who may be injured on your property.

To help decide how much to spend on coverage:

• Determine the highest deductible you can reasonably afford.
• Identify whether you live in a disaster-prone area, such as a coastal state.
• Speak with your agent about additional policies (such as flood insurance or earthquake insurance) that you may need to protect your home.

Sources: Michael Barry, Insurance Information Institute; David Marlett, Appalachian State University.

How much coverage for personal possessions?

When thinking about the amount of coverage you want for your personal possessions, a good guideline is to insure them at 50% to 75% of your dwelling coverage amount.

"If I took my house and turned it upside down, what would fall out?" Barry asks, adding that the answer to that question would include several expensive items, such as electronics and furniture, which can all quickly add up.

So, the idea is that if you insure your dwelling for up to $200,000, then you would want to insure your personal possessions for at least $100,000.

Compare homeowners insurance rates to find the best deal.

What about liability coverage?

If your dog bites the letter carrier or someone breaks a leg falling down your staircase, you could be on the hook for those injuries without the right liability coverage.

The amount of liability coverage typically included in a homeowners insurance policy ranges from $100,000 to $300,000, according to the Insurance Information Institute. If you're a high-net-worth homeowner, you may consider purchasing an umbrella liability policy to provide additional liability protection for your assets.

What else is there to think about?

If you think you're doing your wallet a favor by reducing your home insurance when the market value of your home drops, think again.

"(Insurers) are looking at not the market value (but) what it's going to cost to rebuild the home, and oftentimes that has nothing to do with the market value," Barry says. In fact, he says homeowners may instead need to increase their level of coverage over time, to account for inflation in the costs of construction materials and labor.

Note also that flood damage is not covered by a standard homeowners policy -- you have to purchase separate coverage. So, when deciding how much home insurance coverage you want to buy, be sure to consider that you may need room in your budget for flood insurance, too, depending on the flood threat where you live.

"Most people, when they buy a homeowners policy, they assume they are fully covered against a relevant risk," says David Marlett, chair of the department of finance, banking and insurance at Appalachian State University in Boone, N.C. "If the bank didn't require them to get flood insurance, then they might think they probably didn't need it."

Don't forget the deductible

Another factor to consider in your calculations is your deductible, which is what you will pay out of pocket for every claim you submit. The higher your deductible, the lower your insurance premium will be.

"I always recommend (getting) as high a deductible as you can possibly afford," Marlett says.

Figuring out all the coverage you need to purchase to protect your home and its contents isn't something you should do alone, he adds.

"A good agent can walk you through this; they can get multiple quotes for you. They deal with this every day."

Copyright 2014, Bankrate Inc.

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