A Georgia widow sat crying on a tree stump in her backyard, surveying what was left of her charred home.

Even though she had homeowner's insurance, seven contractors refused to rebuild her house. The reason: It wasn't insured for enough money to rebuild it at current construction prices.Inadequate insurance coverage is a serious problem for thousands of American homeowners, according to Nelson Bean. Bean's catastrophe reconstruction company, the Evans American Corp. of Houston, volunteered to rebuild the widow's house for less than cost.

Bean says the problem exists because most people do not understand co-insurance. He says policy owners should read the fine print - before catastrophes occur.

"With proper insurance representing just 3 percent of monthly housing expenses for home buyers, there is no reason why every homeowner should not be adequately protected," says Bean, who has supervised insurance-funded reconstruction of more than 5,000 homes.

The consequences of underinsurance can be tragic. Consider the case of an elderly Tennessee woman whose lifelong home was destroyed by fire. Although Bean wanted to help her, his company was unable to bridge the gap between her insurance coverage and the cost to rebuild.

Her home, which would cost $40,000 to rebuild, was insured for $20,000, but because of a co-insurance clause, she could collect only half. So instead of having a comfortable home in which to live out her life, she was left with a $10,000 insurance check.

These experiences left a lasting impression on Bean. His company now rebuilds commercial and industrial losses rather than single-family homes, but Bean continues to warn homeowners against the hazards of underinsurance.

Although the Insurance Information Institute estimates that 95 percent of homeowners carry household insurance, Bean conservatively estimates that about 10 percent of all homes are underinsured. His estimate is based on nearly a decade of experience in meeting homeowners sorry to learn that their insurance alone cannot replace their homes.

Bean says underinsured homeowners face some very unpleasant choices. They must pay the difference between insurance and replacement or settle for less of a home. Some, like the Tennessee woman, are unable to rebuild.

Bean says the most common mistake homeowners make when buying insurance is failing to read and understand the co-insurance clause.

The co-insurance clause states that the homeowner must insure the home for a certain minimum amount of the replacement value, usually 80 percent, before the insurance company will pay full replacement cost. If the home is insured for less than the co-insurance limit, the company will pay only that percentage of the cost for repairs.

For example, if a $100,000 house is insured for $50,000 - 50 percent of replacement value - the insurance company will only pay 50 percent of the replacement cost, or $25,000, if the house is destroyed.

Bean says most homeowner policies feature co-insurance clauses, the insurance industry's way of sharing the risk with homeowners who do not buy sufficient insurance.

"Most homeowners have no idea what the co-insurance clause is until their house is damaged," Bean says.

(BU) Tips for homeowners to determine the actual amount of insurance needed:

- Base coverage on the home's current replacement value. Replacement value is what it would cost to rebuild today. It is not the same as market value or purchase price. Replacement value does not include the cost of land, which does not burn up or blow away.

- Update coverage annually to allow for inflation in construction materials and labor. A local building contractor or insurance agent can be a good source of information.