Many Homeowners Face Financial Hardship Due to Insufficient Insurance Coverage
When disaster strikes, such as a hurricane or wildfire, many homeowners discover a harsh reality: their property insurance isn’t enough to cover the damage. This is a growing issue, leaving many vulnerable after events in California and the Southeast.
The investigation by Spotlight on America highlights this problem, revealing that a significant number of homeowners lack the necessary coverage to rebuild or recover fully. Angie Moreschi explored this issue.
![APA Executive Director Doug Quinn standing in front of his New Jersey home after it was flooded by Hurricane Sandy. (Courtesy Doug Quinn)]
Underinsured Status of Homeowners
According to the article, the problem is widespread. Three out of four victims of the 2021 Marshall Fires near Denver were underinsured, a study from the University of Colorado Boulder found. Many had insurance, but the coverage limits were insufficient to rebuild their homes.
One homeowner, who lost their home, described the impact: “It can be quite devastating. You’ve just lost your home, you’ve lost just about everything you have, and to realize that you’re going to be relying on charity.” Homeowners are often focused on premiums and not enough on coverage limits.
Emily Gallagher, co-author of the Colorado study, shared her personal experience, which motivated her to study the issue. “My family packed up, got everything in the car. We were about to evacuate, and you could see those flames from the back of my house,” she said, recounting the harrowing night.
The Human Cost of Insufficient Coverage
Doug Quinn, the executive director of the American Policyholder Association (APA), knows the impact of inadequate coverage from personal experience. His New Jersey home was severely damaged by Hurricane Sandy in 2012. He explained, “It was devastating. It changed the whole course of my life. It took me seven years to get back home and I was fully insured.”
Following recent disasters, Quinn has helped victims who discovered they weren’t adequately insured. This experience has led him to advocate for better homeowner understanding of their policies.
He shares that people often believe their insurance will cover them. It’s crucial to review policies and understand the fine print, including any exclusions and changes in coverage. According to Quinn, when setting the policy limit, which is the maximum amount it will pay out, it’s essential to consider the rebuilding cost instead of the market value, which takes into consideration inflation on labor and supplies.
Gallagher points out that cheaper coverage can expose homeowners to financial ruin when disaster strikes. She said, “When they’re getting that lower premium, it’s partly because they’re being underinsured.”
To estimate rebuilding costs, there are online tools. It’s important to remember that flood coverage requires a separate policy. FEMA data indicates that 99% of U.S. counties have experienced flooding, while only about 5% of homeowners have flood insurance.
Quinn concludes that those affected by disasters are often forced to make difficult decisions and tap into their savings and retirement funds.
Understanding Your Insurance Policy
Insurance policies offer different coverage levels. It’s important to understand the difference between replacement value and actual cash value. Most policies cover the replacement value for the structure of your home, up to the policy limit; however, replacement value isn’t automatic for contents. Instead, homeowners can choose actual cash value, which is cheaper but factors in depreciation, resulting in less compensation.
Liability coverage, which provides protection against lawsuits for bodily injury or property damage, is another essential part of your policy.
Gallagher hopes her study can help raise awareness about the underinsurance crisis to better prepare homeowners for the future.
