Carol Allen is wistful as she says this and hopeful that the paid-off Central Seattle home that's been in her family since 1954 will again be home to the three-generation Allen clan.

But because of an insurance misunderstanding on her part, there's no money to rebuild the comfortable three-bedroom home with the new kitchen — Allen's pride and joy and, in a wholly unanticipated way, her downfall.

She admits she didn't really understand how insurance worked. It's a costly mistake those in the insurance industry say homeowners can make if they're not clear about their insurance: what's covered, what's not and what happens when a premium goes unpaid.

At its simplest, Allen, 57, let her homeowner's insurance lapse. But as so often happens in tragic stories, the situation was thorny, in her case brought on by a string of misfortunes that would have brought Allen to her knees if not for "my faith in God; it's what gets me through."

Known to many in the Central Area as "Mamma Allen," she knew just about everyone from her years working at a restaurant that's a neighborhood institution: Thompson's Point of View.

Many others she met as a volunteer football coach for the Central Area Youth Association. She is on a first-name basis with many Garfield High School alums who built their high-school careers on lessons she taught them.

But as Allen entered her 50s, problems arose. Two sons died in separate auto accidents, the most recent a year ago. Her longtime fiancé developed health problems; in January 2004, he almost died.

And Allen struggled with high blood pressure and an enlarged heart that put her on the path to congestive heart failure and an early death. Unable to work, she subsisted on Social Security disability income.

Last fall, she had open-heart surgery. She was still on the mend when her daughter called on her cellphone, telling Allen her beloved home was on fire. It was April 13th.

"I'd gone to the store to get stuff for dinner," Allen recalled. "Oxtails."

Then, as almost an afterthought, "They're still at my neighbor's house."

Allen raced home, frantic because three family members had been in the house when she'd left for the store. They were OK, but the fire, caused by an electrical short in the attic, was devastating.

"I had no idea it would be that bad," Allen said. "They had streets blocked off, ambulances everywhere."

Flames were shooting from a front window blown out by the heat and from a large hole firefighters had cut in the roof. Still, the tidy home, built in 1941, looked possibly reparable.

That was until the flames died and Allen could see what the fire had wrought. Inside, the walls and furnishings were blackened and heavily charred. The living-room ceiling had peeled away and fallen in blistering chunks. Some walls were missing.

On the floor, amid the smoky rubble, a singed shard of a child's school photograph gave testimony to the family that lived there — five people in all, including grandchildren.

All five were immediately homeless, and Allen was left to ponder her choices.

Difficult choice

After decades of faithfully buying homeowner's insurance, she'd come to a point in December when she had to make a choice: Pay her insurance premium or spend the money on the medication that was keeping her alive.

Those many bottles of pills totaled several hundred dollars a month, and she had no insurance to cover that cost.

It's a decision local housing advocates who work with older homeowners say is surprisingly common.

Allen rationalized her decision. "I figured the house hadn't burned."

And when it did, she blamed herself for the consequences of her choice: "You think I haven't kicked myself a hundred times?"

But she had one last bit of hope. She was still paying off the home-improvement loan on her new kitchen. After her homeowner's insurance lapsed, the lender who held that note notified her it had taken out an insurance policy. It was charging her for it, so Allen assumed it would cover her loss.

It didn't.

Called "forced placed insurance," the policy covered the lender, insuring that it would get its money if Allen couldn't pay. Lenders regularly take out such coverage when homeowners let their policies lapse, and they send out notices telling owners so.

Allen had received that notice. She says she did not understand what it meant to her.

Steve Finnerty doesn't know Allen, but as regional sales director for Liberty Mutual Group, the nation's eighth-largest auto and home insurer, he's heard cases like hers.

The confusion about insurance, how it works and what it covers, is common, Finnerty says.

"I can understand what happened with this woman," he said.

He's also seen instances where homeowners thought private mortgage insurance (PMI) was a life-insurance policy that would pay off their mortgage if they died. It doesn't. PMI protects the lender if the borrower defaults on the mortgage.

Finnerty and other agents can recount, too, tales of homeowners who didn't understand until too late that they were underinsured.

A 1999 study of irreparable losses on more than 10,000 houses found that 70 percent of the owners had underinsured their homes by at least 25 percent, according to an article in The Insurance Record.

In such cases, losses can exceed policy limits, leaving owners to pay a significant chunk of repair costs out of their own pockets.

State Farm agent Kent Christianson says his firm, like others, keeps current on reconstruction costs so that it can help owners maintain adequate coverage.

Insufficiencies can develop if homeowners remodel or expand their home and don't update their agent on the home's increased worth. Ditto if they buy an expensive item, like a diamond ring, with a value that exceeds their policy's standard coverage.

"A large purchase or an upgrade of their home should be a trigger for a call to their agent," said Christianson, an agent in North Seattle. "I don't find any of my clients wishing to under-insure, but I do find the discussion to get to that right value can be pretty in depth."

Know the exclusions

Homeowners also need to realize insurance doesn't cover every possible loss. Indeed, the list of exclusions can be extensive.

For example, policies usually don't cover insect and rodent infestations, landslide damage, settling and cracking, damage to vehicles in garages or loss of value caused by neighborhood development — a topless bar going in down the street, for example.

Earthquake and flood damage also aren't covered unless the homeowner buys special insurance to cover those calamities.

Some insurers also exclude liability coverage for injuries caused by certain breeds of dogs.

"The important part about homeowner's insurance is that it will tell you what's not covered on the exclusion page of your policy," Finnerty said. "If it's not in there, the assumption is you have to be covered."

But covered for what?

Homeowners have two choices: replacement cost or actual cash value of the damaged, destroyed or stolen items. As Finnerty points out, the actual cash value of a television that cost $1,000 a decade ago may be only $100 now. If its owner opted for actual cash value coverage, that $100 is all that will be paid out.

Rather than letting their insurance lapse, homeowners who are in a bind should call their agent, because most companies have different payment plans and cost-cutting techniques.

Installing smoke detectors and deadbolts, for example, may lower premiums. So can adjusting the deductible; it sets the threshold at which insurance kicks in.

"[Homeowners] should ask themselves, 'If I had a loss today, how much could I afford to put out before I called the insurance company?' If I could afford $1,000 (instead of $500), than I can take a higher deductible, and that lowers the premium," Finnerty said.

The average fire loss is more than $10,000 according to the most recent statistics from the Insurance Information Institute, and fire is among the leading reasons for insurance claims.

After her fire, Allen said "The first question people asked was, 'You had insurance, didn't you?' "

Her response has brought an outpouring of support from friends and neighbors. But it's not been enough to repair her home. The cost is estimated at $275,000, not including contents.

So today the Allen family lives in an apartment, mourns the loss of a home that anchored them deeply to their neighborhood and ponders what to do next.

Allen says that frankly, she doesn't know.

"I'm sad for the things that are lost but so glad nobody was hurt," she said. "I couldn't stand to go to another funeral, I tell you."

Elizabeth Rhodes: erhodes@seattletimes.com