Policies for about two-thirds of U.S. homes are valued well below the replacement cost, according to one industry estimate. The disparity may be greater in some areas of the country with rapidly rising real estate values.

Whether you own a home or are moving into your first apartment, insurers agree: Buy enough insurance to rebuild your house and replace its contents.

"Let the agent figure a replacement cost," says Susan LaPlante, a sales agent for the Insurance Center of Manitowoc in Wisconsin.

Don't be confused when a computer-generated replacement value differs from a tax assessment or sales price.

"There's market, assessed and replacement value," she says. "They're three different values, and we must use the replacement one."

For a home, calculating replacement value takes into account total square footage, excluding basement, as well as amenities like bathrooms and air conditioning, LaPlante says.

Homeowners can be underinsured even without a total loss, says James Frederickson, executive director of the industry-financed Arizona Insurance Information Association. Homes 40 years or older are more likely to be underinsured, as are personal possessions.

Capt. Tom Elam of the Tucson, Ariz., Fire Department knows this. He's seen fire destroy or severely damage more than 100 homes during his more than 30 years with the department. That's why he recently increased his own insurance coverage.

"I've seen a lot of people go through this — losing their home and wishing they had more insurance," Elam says. "It's pretty sad."

In two years, the value of his home went from about $200,000 to $250,000. Increased demand for housing has raised prices along with the cost of building materials such as concrete.

Insurance policies undervalued 64 percent of American homes by an average of 27 percent below what it would cost to replace them, according to a 2003 study from Marshall & Swift/Boeckh, a company that helps insurers determine property values.

"It's difficult for homeowners to comprehend the value of their property," Frederickson says. "I think it's more common than not because a majority of people are reluctant to have an insurance check-up."

A typical homeowner's policy covers most perils, such as fire and lightning, smoke, vandalism, theft, windstorms and hail, explosions, riots, damage from vehicles or aircraft and glass breakage.

A renter's policy typically won't cover the building but will cover a tenant's liability and personal belongings.

When picking out a home or renters policy, find out whether it replaces damaged property or if it takes depreciation into account.

"Be sure you have what's called replacement cost coverage," says Mark Rhein, an American Family Insurance agent in Manitowoc, Wis. "If something gets damaged, the insurance company will repair or rebuild it, and they won't depreciate the loss.

"For example, if you have a hailstorm that destroys a roof that's 20 years old, they'll replace it with a brand new one," he says. Or if your home entertainment system goes up in flames, that also would be replaced.

Otherwise, a company might pay only a fraction of the cost, he says.

Another wrinkle for homeowners is choosing the amount of liability insurance. This coverage takes care of lawsuits for an owner's negligence, as when someone trips on your walkway or your dog bites a neighbor.

The recommendation: $300,000, says Gary Prigge, owner of Prigge Insurance in Two Rivers, Wis.