Homeowners Are Paying More for Insurance, but They Still May Be Underinsured | Insurify

Daniel Ilinykh doesn’t need industry statistics or ballyhooed public opinion polls to convince him there’s an underinsurance crisis in America. He sees it firsthand.

Ilinykh is a flooring and tile contractor in the Tampa, Florida, area and knows from experience that an increasing number of homeowners lack the crucial insurance coverage needed to repair their homes after a loss.

“From what we’ve seen over the last few years, a lot of homeowners are definitely trying to lower monthly costs wherever they can, including insurance,” Ilinykh, who runs Bay Way Flooring, told Insurify. “We’ve worked on projects where homeowners were surprised by what their policies either didn’t fully cover or how high their deductibles had become.”

Homeowners are focused on affordability as insurance premiums rise. But underinsurance is also a critical issue, as consumer advocates and industry groups point out.

Homeowners are reducing their coverage, raising their deductibles, and shopping for different policies as premiums increase. The average annual cost has surged by more than $900 since 2021, according to Insurify data. Six states saw rates rise at least 20% in the past year: Minnesota (34%), Colorado (33%), Iowa (28%), Nebraska (25%), Oklahoma (24%), and South Carolina (20%).

And the cost increases continue. Insurify data shows premiums have risen three times as fast as inflation since 2021. That could explain why some homeowners are increasingly underinsured. But it’s a matter of some debate just how widespread the problem is. Different surveys report conflicting figures.

An oft-cited 2025 survey by Kin Insurance found that 18% of Americans — roughly 42 million people — say they’re underinsured, meaning their current home insurance policy doesn’t provide enough coverage to fully replace or repair their home in the event of a loss.

But a 2022 Harris Poll survey on behalf of the American Property Casualty Insurance Association (APCIA) found that two out of three homeowners — or more than 80 million Americans — were underinsured.

Costs, knowledge impacting the underinsurance gap

Though the surveys differ in scope, both indicate challenges driven by rising premiums, surging home values, and higher rebuilding costs. And both surveys highlight a significant knowledge gap: Many homeowners don’t understand their insurance needs or coverage.

A 2025 University of Colorado study of homeowners affected by Colorado’s 2021 Marshall Fire found that 74% were underinsured, with an average coverage gap of $139,000.

“Homeowners don’t cancel their policies outright,” said Matt Bigach, co-founder of Nexus Homebuyers, a Tennessee-based real estate company that works directly with homeowners in financial distress. “They do it in a stealthy way, eroding coverage.”

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“They raise deductibles, they lower flood riders, they cancel extended replacement cost coverage because the premium difference seems reasonable on a monthly basis,” he said. “And honestly, that math makes sense when your grocery bill increased 30%, and your insurance premium increased by another $200 on top of that.”

Bigach recalled a Knoxville family who, after removing their flood rider to save money, faced $40,000 in uninsured repair costs from a basement flood. They exhausted their savings and maxed out their credit cards to cover the damage.

“When we met them, they were three months behind on their mortgage and on the verge of foreclosure,” he said. “That’s a family that made a reasonable short-term decision [to reduce monthly expenses] that cost them their home.”

What’s next? A financially risky trend

“From a wealth management standpoint, [underinsurance] is one of the most financially risky trends I’ve seen in the past few years,” said Ian Skjervem, CEO of Smart Investors Daily. “I look at underinsurance the way a balance sheet analyst would, not as a premium decision but as an unhedged liability sitting inside a household’s net worth. A major loss event combined with coverage gaps can result in financial losses that can erode years of disciplined savings in one claim.”

Skjervem added that many homeowners are simply unaware that a standard property insurance policy covers only the original amount borrowed or the home’s original purchase price. It doesn’t account for inflationary increases in building materials and labor costs associated with construction.

“We see this constantly when homeowners aggressively raise their deductibles from a manageable $500 to a risky $5,000 or $10,000 to blunt the impact of premium hikes,” said Mike Roberts, co-founder and president of City Creek Mortgage, in Draper, Utah. “Although these actions will lower the homeowner’s monthly insurance bill, they leave them financially exposed in the event of unforeseen circumstances, such as a small kitchen fire or a roof leak.”

Homeowners often don’t discover they’re underinsured until after a major loss. Mortgage experts and financial managers say there are warning signs and actions to take if homeowners think they may be underinsured.

1. Understand dwelling coverage limits. Most homeowners know their home’s market value, what they paid for it, and their mortgage balance, but not their Coverage A (dwelling) limit or the cost to repair or rebuild their home after a loss. Homeowners may have Coverage A insurance of $500,000, even though the actual rebuilding cost could be $700,000 or more.

2. Review home insurance policies more frequently. If your policy limit is from five to 10 years ago, you should revisit it. A $400,000 rebuild estimate from 2016 isn’t realistic today.

3. Significant home improvements have been made without notifying the insurer. These improvements enhance the home’s value and increase the likelihood of underinsurance. In some cases, the improvement areas may not be covered at all if you didn’t notify your insurer about them.

4. Your home would cost more to rebuild than to buy. Market value and rebuilding costs are different. An APCIA survey found that many homeowners misunderstand this distinction, believing their dwelling coverage is tied to market value rather than reconstruction costs. As rebuilding expenses rise, homeowners who don’t regularly review their coverage limits may discover after a major loss that they lack enough insurance to fully rebuild their homes.

5. Absence of inflation guard or replacement cost coverage. Inflation guard adjusts coverage limits as property values change, while replacement cost coverage replaces items at their value without considering depreciation. Both can help prevent unwanted loss-related surprise expenses.

6. The deductible has quietly increased. This change may not hinder coverage but could leave the homeowner responsible for more of the up-front costs than expected.

“A less expensive policy does not mean it is a better choice for us,” said Michael McCready, managing partner at McCreadyLaw, in Chicago. “Sometimes, we simply cannot afford to have a cheaper policy, because it can end up costing us more.”

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