Homeowners can expect home insurance rates to rise again this coming year. A good part of those higher costs are tied to the rapid appreciation in home values and the refinancing boom caused by record low interest rates.

Higher home values, along with expensive natural disasters in recent years, are expected to push the cost of homeowners insurance up by 8 percent in 2004, according to the Insurance Information Institute, a national nonprofit group. This increase represents a slight change from the estimated 7 percent increase in 2003, the group reported.

The average cost for home insurance nationwide is projected to rise to $615 next year, compared to an average of $569 in 2003, the national group's information shows. Average insurance increases in California usually closely follow the national average, said Omar Morales, spokesperson for the Insurance Information Network in California.

"Part of the increase reflects choices more homeowners are making," said Robert Hartwig, economist for the network. "People are taking advantage of record low interest rates and are moving into new homes or making additions to their existing homes in near record numbers." "People expect their premium to stay the same, but they don't realize they have more house to insure," he added.

Given the rapid rise in home values in recent years, homeowners should make it a priority to determine if they have adequate insurance coverage. Here are some tips from how homeowners can protect themselves from being underinsured:

Homeowners need to inform their insurance agents about any improvements or additions made to their homes since their policy was last updated. The limits of the policy coverage are usually explained on the Declarations Page Under Section 1, Coverage A. This shows the maximum amount the insurance company will pay to rebuild a home in case of fire or other disastrous event.

To determine if the policy coverage is adequate, homeowners need to base their insurance needs on current local construction costs to rebuild a home - and not the price of the home. Due to increases in workers' compensation costs in California, construction costs have risen dramatically over the last several years. Also, building codes may have changed since the home was first constructed and rebuilding to current standards will likely cost more.

Local insurance agents, appraisers and building professionals estimated that it currently costs between $100 to $150 per square foot to rebuild a non-frills home in Santa Barbara County. For homes with more expensive architectural details and materials, and other considerations, the costs would run higher.

For those looking to move or to buy their first home, the national group strongly recommends buyers to check the construction of the home and its insurance claims record. These issues can make it very costly or nearly impossible to get insurance coverage on the property.

Homes built more than 60 years ago may have an especially hard time qualifying for the strict standards required by most insurance companies these days. The insurance industry is currently in a "hard market," which essentially means that it has been paying out more to cover claims then it has been taking in through premiums.

To stay afloat, insurance firms have become much choosier about which homes they will insure. They also have had to raise premium rates, tighten the process for paying on claims, and some firms have stopped writing new home insurance policies altogether.

Before purchasing a home, a potential buyer should ask for a copy of the home's CLUE report. The report details the insurance claims filed on the property for the past five years.

Current homeowners should also exercise caution when filing claims on their property. Each claim will appear on their CLUE report and could cause their premiums to rise. Even worse, the insurance company could cancel the coverage altogether, given the hard market.

"Homeowners need to consider paying for small things on their own to help keep their insurance costs down," said Mr. Morales, at the network. "They need to save their claims for the really big losses."

e-mail: mzate@newspress.com