Most Homeowners Are Underinsured—Here's How to Check

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After Colorado's 2021 Marshall Fire, researchers found 74% of homeowners were underinsured, and over a third were severely underinsured—meaning their policy covered less than 75% of rebuilding costs. This can happen because brokers sometimes set coverage limits low to offer competitive premiums, buyers use purchase price rather than rebuild cost to set limits, and building costs rise over time while policy limits stay flat. NerdWallet's guide recommends reviewing your dwelling coverage limit (listed as Coverage A) at least annually using a replacement cost calculator or broker estimate, and upgrading personal property coverage from actual cash value to replacement cost so you receive the full price of new items rather than depreciated value.

Beyond basic limits, the article flags several gaps worth checking: standard policies exclude flood and earthquake damage entirely; wind and hail deductibles in hurricane-prone states can run 1–5% of dwelling coverage (up to $20,000 out of pocket on a $400,000 home); and only about 1 in 10 California residents carry earthquake insurance despite high risk. Adding extended replacement cost coverage—which raises your payout limit by 10–50% if a disaster drives up local rebuild prices—typically costs only $30–$150 per year. The article also notes that roughly 40% of federal flood insurance claims come from outside officially designated high-risk flood zones, so flood coverage is relevant even for homeowners who aren't required to carry it.