3 coverage gaps to know
A home along the Fox River is surrounded by floodwaters, near Crystal Lake, Illinois, April 21, 2026.
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Many homeowners have a big gap in their insurance coverage — and they likely don’t know it, according to insurance experts.
That leaves policyholders financially exposed to damage, including from natural disasters that are becoming more frequent or costly, such as wildfires, hurricanes and flooding — potentially putting their biggest financial asset at risk, experts said.
Costs for consumers to keep their coverage have risen substantially in recent years amid soaring insurance premiums.
“A supermajority of homeowners want to fully and adequately insure their homes, are willing to pay for it, and think they have it,” Kenneth Klein, a law professor at California Western School of Law, wrote this year in a Lewis & Clark Law Review article. “But most of them are wrong and are short by a lot.”
A ‘crisis of underinsurance’
A burned neighborhood in the aftermath of the Marshall wildfire, Louisville, Colorado, Jan. 24, 2022.
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About 90% of owner-occupied homes in the U.S. are insured, Klein wrote.
The typical homeowners insurance policy puts financial limits on coverage in a variety of ways — for example, by excluding certain types of disasters or capping payouts for certain items or types of damage.
Klein conducted an analysis of California Department of Insurance data on 74,000 fire-related claims of any size — from wildfires to house fires — from 2018 to 2023. Among those claims, more than 70% of homeowners with insurance were underinsured by an average of roughly 20%, Klein wrote.
The problem is not limited to California, he said.
“This data shows that there is a barely hidden nationwide crisis of underinsurance,” Klein wrote. The dynamic “persistently and inevitably robs homeowners of any chance to fully recover what they have lost,” he wrote.
There are many reasons why homeowners are underinsured, experts said.
Some consumers may intentionally choose a lesser coverage amount just to afford any coverage at all, Amy Bach, co-founder of United Policyholders, a consumer advocacy group, wrote in an e-mail.
However, many consumers are unaware of the gap, experts said.
On one hand, a “broad swath” of Americans don’t understand what they’re buying due to confusing language in their insurance contracts, according to research published in May in Virginia Law Review.
Additionally, insurers continue to exclude more things from coverage and cap the dollar amounts for the things they do cover, Bach wrote.
Consumers also generally underestimate how much it would cost them to rebuild their homes, experts said.
Unfortunately, “coverage gaps are often discovered at the time of the loss — which is when you don’t want to discover them,” said Lareesa Klingler, director of national claims for the private risk solutions group of Lockton, an insurance brokerage.
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