It happened every year to the owner of a two-story brick, Georgian-style home in a northern suburb of Chicago.

The company carrying his homeowner's insurance policy would forward him a bill for the next year's insurance. The amount of coverage always increased, as it would in these inflationary times, but the homeowner was puzzled. Not once had his agent contacted him to discuss whether the increased coverage was adequate, and when the owner tried telephoning the agent, he was referred to the insurance company's regional office.

"Thinking I wasn't getting the best of service, I decided to shop around this year. When I bought the house 13 years ago, I assumed the insurance policy of the seller, who told me the policy was a good one," the owner said.

"Was I surprised! The renewal this year would have cost me $199 for $46,500 coverage. Not only did I learn that the premium was rather high for that amount of coverage, I also discovered it was drastically underinsured.

"Another agent, who has an office in the neighborhood, quoted me -- and I accepted -- a policy for $75,000 coverage for only six dollars more -- $205. The agent also visited the house, took pictures and measured the perimeter.

"That $75,000 is 80 per cent of the value of my home. I dread to think of what would have happened had I had a serious fire and only $46,500 coverage," he said.

"The new policy also increased my personal liability protection to $100,000, compared with $25,000 under the old policy.

"A similar incident occurred with my next-door neighbor, who also switched insurance companies."

This incident points up the two most common mistakes homeowners make when insuring their residences and household belongings. Too many homes today are under insured, and too often buyers fail to shop around for the best insurance deals, in both dollars and service.

Any homeowner or renter who is confused about insurance would be wise to invest $2.95 for a paperback copy of Stanley Leinwoll's consumer's guide to home insurance, "So You Think You're Covered?" (Charles Scribner's Sons).

Leinwoll covers every phase of insurance for the homeowner -- how to deal with an insurance agent, understanding the complicated language of a policy, how to make certain you're adequately covered and what to do in the event of a loss.

Being complacent about homeowners' insurance literally is playing with fire and its devastating losses.

Statistics show that about 54 per cent of all building fires in the United States occur in residences of one or two units. These fires account for a quarter of the $3.6 billion in building fire losses annually. And losses from home burglaries run into hundreds of millions of dollars a year.

If any of the 'three I's' -- inflation, improvements or purchase of expensive items -- affected your home within the past 12 months, it's time to investigate a 'fourth I,' an increase in policy coverage.

But an increase in policy coverage does not necessarily mean a sizable rise in premium payments. There are several ways to keep the costs down.

Take a higher deductible. The larger the deductible, the more you save on premiums. Also, install risk-reducing devices. Some insurance companies will give the homeowner a premium break if smoke detectors or burglar alarm systems are installed in the home.

And shop around. Use your consumer savvy to find the best coverage in return for the most reasonable price. An important point to remember is that a home buyer can't obtain a mortgage without sufficient coverage to cover the amount of the loan if the house is destroyed. But don't stop there. Make certain the policy is for a large enough amount to repay you for replacing, rebuilding or repairing at current costs.

Experts agree that the best insurance buy for the homeowner is the "comprehensive form" policy, which makes good on losses for almost any cause except flood, surface water, sewer backups, seepage, earthquake, landslide, war and nuclear radiation.

How much home insurance is enough?

In order for the owner to be reimbursed for the full cost of property damages or losses, the property must be insured for at least 80 per cent of the replacement cost of the dwelling. (Some companies are now increasing their minimum requirement to 90 or even 100 per cent.)

If a house were insured for only 50 per cent of its value, the homeowner might be reimbursed for no more than 50 per cent of a loss. If the insurance is for 80 per cent of the value, he or she would be reimbursed for the total amount up to the dollar value of the policy.