Are you underinsured? Why you may be overconfident about your home insurance

Do Americans have enough insurance for a natural disaster?

An estimated 50% to 75% of homes are underinsured, indicating Americans don’t have enough or the right insurance to protect their homes from natural disasters, according to experts and studies. As construction costs rise, homeowners looking to save money aren’t increasing their coverage to keep up.

“Inflation, supply chain issues and increased demand for skilled labor and construction materials following several years of unprecedented natural disasters have all contributed to a significant increase in the costs and timeframes to rebuild homes and businesses,” said Karen Collins, vice president of property and environmental at the American Property Casualty Insurance Association (APCIA). “Homeowners and business owners need to ensure the coverage provided by their insurance policy is keeping pace with these elevated costs.”

Uninsured losses often come as a surprise to homeowners.

“Most consumers assume their home insurance policy includes flood coverage, but it doesn’t. In fact, only 4% of U.S. homeowners carry flood insurance, which is the largest insurance gap across the country,” Friedlander said.

Are homeowners overestimating their insurance coverage?

Homeowners largely overestimate their insurance; most are confident in their coverage, even though statistics show that the majority are underinsured. Seventy-four percent of homeowners in the Insurance.com 2026 survey said they feel adequately protected by homeowners insurance for a natural disaster, with 19% saying they’re not sure they have enough coverage. An additional 3% said they don’t have enough coverage, but can’t afford it.

Here’s a breakdown of the survey responses to the question “Do you feel adequately insured for a natural disaster, such as a flood, wildfire, hurricane or tornado?”

Selected response	Percent who chose the response
I’m not sure how much homeowners insurance I have	3.5%
I’m not sure whether I have enough insurance for a natural disaster	18.6%
No, homeowners insurance isn’t a priority	0.6%
No, I can’t afford the coverage I need	3.0%
Yes, I feel adequately protected	74.2%

Overestimating coverage leaves gaps that can surprise homeowners, and they need to rethink the impact of natural disasters, according to Collins.

“Bridging preparedness and insurance gaps requires a change in the way we all think about natural disasters. Too often, people overestimate their preparedness for natural disasters and other emergencies, and this can lead to gaps in preparedness and insurance coverage,” she said.

Why don’t homeowners have enough insurance?

Homeowners don’t have enough home insurance because they are focused on cost rather than coverage, and because their coverage hasn’t kept up with construction costs. The University of Colorado 2025 study found that people focus on price without accounting for coverage differences, choosing a cheaper policy that provides less coverage and leaves them underinsured. Most don’t purposefully choose lower coverage; in our survey, only 3% bought lower coverage because they couldn’t afford it. And, while insurance companies recalculate replacement cost and increase coverage limits, their internal calculators can be inaccurate; correct replacement cost is vital to proper coverage.

So homeowners buy the cheapest policy regardless of the coverage they need, rather than the one that covers what they need at the best price. And, compounding that, they rely on insurance company calculations that may not be accurate.

“I think it is very common for homeowners to be underinsured,” said Dr. Haibo Stephen Yao, assistant professor of insurance and risk management at the University of Central Arkansas. “Although in reality, homeowners insurance companies frequently adjust your home value and then your insurance premiums, it is better for you to check…to make sure you purchase enough liability coverage and property coverage, and whether you have valuable personal property such as precious coin collections, jewelry, paintings, etc.”

To avoid being underinsured, homeowners need to understand how much coverage they need and then compare coverage for that amount to find the best price.

Which natural disasters are homeowners least prepared for?

Floods are the natural disaster for which homeowners are the least prepared; the majority of homes are not covered by flood insurance, and homeowners insurance doesn’t cover overland flooding. Hurricanes are also a major coverage gap due to the lack of flood insurance. And although it’s considered a West Coast concern, earthquakes and earth movement are not covered by home insurance and occur nationwide.

Finally, underinsurance leaves homeowners at risk from even disasters that are covered by home insurance, like wildfires; having the right amount of coverage is the best way to be prepared.

Floods: The largest coverage gap in America

Flood insurance is the largest coverage gap nationwide; FEMA estimates that only 4% of homeowners have it, though 22% of respondents in our survey say they do. Floods are the most common natural disaster in the U.S. They can occur anywhere (more than 25% of claims from homeowners living outside flood zones), and aren’t covered by home insurance (flood insurance is a separate policy). It’s the natural disaster homeowners are least likely to be covered for.

The gap is partly because homeowners don’t realize that home insurance doesn’t cover floods. Any water that enters your home from an overland source (a storm surge, heavy rain, a river overflowing its banks) is excluded from home insurance coverage. Coverage must be purchased separately.

“Most homeowners assume their hurricane coverage includes floods, which it doesn’t. Flood insurance is a separate coverage available through either the National Flood Insurance Program or dozens of private flood insurers,” Friedlander said.

Most people don’t have flood insurance because they don’t think it’s a risk where they live. But not having it can be a costly mistake, as homeowners in the path of Hurricane Helene and other unexpected storms have discovered.

Hurricane Helene's devastating flooding far from the coast

In 2024, Hurricane Helene brought torrential rainfall, causing massive flooding in areas not usually prone to hurricane damage, particularly in western North Carolina, where it is estimated that less than 1% of homes had flood insurance. Of the estimated $250 billion in damage done, only about $5 billion is covered by insurance, PBS reported.

“All areas of the U.S. are prone to severe flooding, not just FEMA-designated flood zones. Ninety percent of natural disasters involve flooding. [In recent years], we have experienced catastrophic floods in inland areas, including Eastern Kentucky, the St. Louis metro area and Vermont. These floods were caused by torrential rainstorms, not hurricanes or tropical storms,” Friedlander said.

Hurricanes: Windstorm and flood insurance coverage gaps

The flood insurance gap indicates that many homeowners are underinsured against hurricane losses. A standard homeowners insurance policy covers water damage, but not from flooding caused by a storm surge or rainfall. Furthermore, some areas require the addition of windstorm insurance as an endorsement or separate policy. And, in areas where hurricanes have raised insurance prices, cutting coverage to save money leaves people underinsured.

Hurricane insurance coverage requires at least two, sometimes three policies:

Standard homeowners insurance
Flood insurance
Windstorm insurance in areas where it is excluded from a standard policy

To ensure you’re fully covered for a hurricane, buy flood insurance and review your dwelling coverage and policy exclusions with an agent or insurance company representative.

“Homeowners in hurricane-prone states should conduct an insurance checkup with their agent to ensure they have an adequate level of dwelling replacement coverage (called “Coverage A” in an insurance policy) to account for rising replacement costs of homes,” Friedlander said.

Hurricane Ian's immense uninsured flood losses

Hurricane Ian in 2022 brought a massive storm surge, resulting in an estimated $10 billion to $16 billion in uninsured losses; the homes were not covered by flood insurance. Around 40% of home insurance claims in the aftermath were denied, with the most common reason being that the damage was caused by flooding, which is excluded from homeowners coverage.

Wildfires: Underinsurance is a big risk

Homeowners insurance covers wildfire damage, but only up to the policy limits. With many people underinsured, the financial risk of a wildfire is the gap between what your policy covers and the actual replacement cost of your home. In some parts of the western states, particularly California, insurance is becoming more expensive and harder to find, and there may be exclusions.

Homeowners in wildfire-prone areas should be especially careful when reviewing their policies, going over any exclusions and ensuring that the replacement cost calculation shown on the dwelling coverage is accurate and up to date.

“There may be some exceptions in high-risk areas, so it’s best to check with your insurance agent to make sure you are protected from wildfires,” Friedlander said.

The Marshall Fire uncovered widespread underinsurance

A 2025 University of Colorado study found that 74% of the homes damaged in the 2021 Marshall Fire were underinsured; of those, 36% were severely underinsured, meaning that their homes were covered for 75% or less of their actual replacement cost. At 75% of replacement cost, a home with a replacement cost of $400,000 is covered for only $300,000, leaving the homeowner to pay the additional $100,000.

Earthquakes: The risk people may not be aware of

Earthquakes are most common and most destructive in states along the West Coast, but they can happen anywhere, and it’s not only quakes that aren’t covered, creating a coverage gap. Earthquakes and other earth movements, including landslides, are not covered by standard homeowners insurance; earthquake insurance is sold as an endorsement by most home insurance companies.

“Unless [they purchase] separate earthquake coverages in the form of [an] endorsement by paying extra insurance premiums, most homeowners get no coverage for that,” said Yao.

Earthquakes happen every year in unexpected places

In 2026, earthquakes have occurred in Louisiana (4.9 magnitude), Nebraska (4.1 magnitude), Nevada (4.8 magnitude) and South Carolina (3.0 magnitude). Quakes of 4.0 to 5.0 rarely cause structural damage, but these events highlight the widespread nature of seismic activity.

How can you find affordable insurance with rising rates?

To find affordable insurance, shop around with as many carriers as possible, explore discounts and raise your deductible. In a high-risk area for natural disasters, invest in home-hardening improvements like storm shutters, impact-resistant roofing and, in wildfire areas, clearing debris and vegetation around your home. State programs are available in some areas to help. Avoid lowering your coverage to save money; underinsuring your home is a huge financial risk.

Look into these state programs to help with mitigation efforts that can lower your insurance rates:

The South Carolina Safe Home Program
The My Safe Florida Home program
The OKReady program in Oklahoma
The Louisiana Fortify Homes program

How to insure your home against natural disasters

To insure your home against the risk of a natural disaster, take the time to review your current insurance policy annually with an agent, looking for gaps in coverage and ensuring the dwelling coverage amount is sufficient to rebuild your home, taking into account any improvements that have increased the value. Add extended replacement cost coverage to protect from inflation. Consider flood and earthquake insurance, depending on where you live, and clarify your windstorm coverage, including deductibles.

“Review your coverage with your insurance agent or company each year. This is the best way to keep from being surprised in the recovery process following a natural disaster. When reviewing your insurance coverage with your insurer or agent, you should verify you have the right amount and [the] right types of coverage. Consider additional policies, such as flood insurance and earthquake insurance, to help protect your family or business from financial devastation. Insurers are also encouraging property owners to take steps to reduce the potential for damage to their home if a natural disaster strikes,” Collins said.

Natural disasters are becoming more common and happening in unexpected places. Even if you think you know the risks in your area, there might be additional risks you aren’t aware of until they occur, especially floods like those caused by California’s atmospheric river.

“Areas prone to wildfires are also prone to catastrophic floods, as we learned from the atmospheric river events that impacted California in early 2023. For homeowners in these areas, we recommend purchasing a flood insurance policy for financial protection from this type of hazard,” Friedlander said.

Even if you feel confident you’re well-insured, an annual check is important as things change. Inflation increases reconstruction costs, new flood maps are drawn and changes you’ve made to your house increase its value. Take the time to check your insurance before you need it.

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