Key Takeaways
- More than two-thirds of U.S. homes are underinsured, according to the Mortgage Bankers Association, and most homeowners do not know it until a major loss occurs.
- Construction costs have risen dramatically in recent years. Average costs per square foot have roughly doubled since 2011, according to NAHB data.
- Renovations and outdated initial estimates are among the most common reasons coverage falls behind.
- Replacement cost coverage and extended replacement cost provisions matter more now than they did even a few years ago.
- Trucordia Go can help you identify gaps and explore options before a claim reveals what you’re missing.
Homeowners insurance solutions are among the things people set up and rarely revisit. That works fine until it doesn’t and you’re in the middle of a stressful situation like a fire, a storm, flood, broken pipe, or a total loss. It’s these times that the gap between what insurance helps cover and what rebuilding actually costs becomes impossible to ignore.
Being underinsured is a common challenge. The Mortgage Bankers Association reports that over two-thirds of U.S. homes are currently underinsured, with many homeowners unaware of their coverage gaps until they face a claim. That number is driven by a coverage landscape that has changed significantly faster than most people's policies.
Why Homeowners Policies May Fall Behind
Construction costs have outpaced policy updates.
The most common reason homeowners end up underinsured is simple: The cost to rebuild a home has risen sharply, and dwelling coverage solutions have not kept pace.
According to the National Association of Home Builders, construction costs accounted for 64.4% of the average price of a new home in 2024, a record high since the organization began tracking the figure in 1998. The average construction cost of a typical single-family home reached $162 per square foot in 2024, up from $80 per square foot in 2011.
That is a fundamentally different number than what an older policy may have been built around. And material costs are a significant part of the story. Building material costs have risen 41.6% since the COVID-19 pandemic, far outpacing overall inflation.
Renovations that add value but do not trigger a coverage review.
A finished basement, a kitchen remodel, or an addition can change what it would cost to rebuild a home. Renovations such as kitchen upgrades, room additions, or higher-end finishes are often completed without evaluating homeowners coverage, which can leave a growing gap between a home's actual rebuild cost and what the policy may reflect.
What an Underinsured Home Actually Costs
The gap between a coverage solution and reality tends to be invisible in normal claims. Partial losses (a roof, a burst pipe, a broken window) may fall within policy limits. But total losses can expose the problem.
After Colorado's Marshall Fire, 74% of policyholders were found to be underinsured, and 36% were severely underinsured, meaning their coverage was below 75% of the actual rebuild cost. Those homeowners were left covering significant reconstruction expenses out of pocket, often tens of thousands of dollars beyond their insurance settlements.
Three Questions Worth Asking About Your Policy
- When was your homeowners insurance last updated? If it has been more than two or three years, or if you have renovated since, it is worth checking whether the number still reflects what your home would cost to rebuild today.
- Does your policy use actual cash value or replacement cost? Actual cash value factors in depreciation, which means a payout for damaged belongings or structural elements will reflect the aged value of those items, not what it costs to replace them now. Replacement cost coverage pays the actual current cost to rebuild or replace. The difference in a significant claim can be substantial.
- Do you have extended replacement cost coverage? Some policies include a buffer, typically 20% to 50% above the stated dwelling limit, to account for unexpected cost increases at the time of a loss. Given where construction costs have gone, that buffer matters more today than it did when many policies were first written.
Faster Way to Find Out Where You Stand
Most homeowners do not discover a coverage gap by reading their policy carefully. They discover it when they need to use it. Getting ahead of that requires a little time and the right guidance.
Trucordia Go makes that process faster and simpler. Available at trucordiago.com, it is a tech-powered tool that helps you explore your home and auto insurance solution options, identify potential gaps in your current coverage solutions, and understand what you actually have, without having to parse the policy language yourself. Trudy, Trucordia Go's virtual assistant, walks you through the experience in a quick chat. And when you are ready to talk through specifics with a licensed insurance professional, that option is a click away.
Frequently Asked Questions
- How do I know if I am underinsured on my home?
- The clearest signal is whether your homeowners insurance solution reflects current construction costs in your area, not your home's market value or what you paid for it. If your policy has not been updated in several years, or if you have renovated since it was set, the coverage amount may no longer reflect what your home would cost to rebuild today. An updated rebuild cost estimate is the most reliable way to check. A Trucordia licensed insurance professional can help you run that number.
- What doesn’t homeowners insurance help cover?
- A homeowners policy is a personal policy. That distinction matters. Any business conducted from the home, whether a home office, client visits, or operating a business out of a garage, is generally not covered under a standard homeowners policy. If you run any kind of business from your home, specific accommodations need to be made with your carrier, or you may have no coverage for business-related losses or liability.
Natural flood damage is not covered under a standard policy. Neither is earthquake damage. Both require separate coverage solutions. Sewer and drain backups are often excluded unless you add a specific endorsement. High-value items like jewelry, art, and collectibles are typically subject to low sub-limits unless you schedule them individually. Damage from deferred maintenance or gradual deterioration is generally not covered. Dog bite liability claims are among the most common homeowners liability claims filed, but many carriers exclude coverage for certain breeds entirely. This exclusion can apply even if your dog is only a mixed breed with a listed breed in its ancestry. Excluded breed lists vary by carrier, so it is worth checking yours specifically if you own a dog.
- When should I update my homeowners insurance policy?
- A general rule is to review coverage annually, and immediately after any renovation, addition, or major purchase. Any significant improvement to your home changes what it would cost to rebuild, and your coverage solution should reflect that. Beyond renovations, it is worth revisiting whenever construction costs in your area have shifted notably, which has been the case across much of the country in recent years.
- Does my homeowners insurance help cover water damage or flooding?
- The key phrase is “sudden and accidental discharge.” Water damage that results from a sudden, unexpected event, like a burst pipe or an appliance that abruptly fails, is generally covered. What is not covered is water damage from a slow leak, gradual seepage, or a drip that went unnoticed over time. Flooding from external sources, including rising groundwater, storm surge, or heavy rain entering the home, is also not covered under a standard policy and requires separate flood coverage through FEMA’s National Flood Insurance Program or a private carrier. Sewer and drain backup is a separate exclusion that requires its own endorsement. The good news is that endorsements and additional coverage options exist for most of these gaps and can be added to a policy. A Trucordia licensed insurance professional can walk you through what is available and what makes sense for your home.
- What happens if my home costs more to rebuild than my policy helps cover?
- You are responsible for the difference. If your dwelling coverage solution is set at $300,000, but rebuilding your home after a total loss costs $420,000, you would need to cover that $120,000 gap out of pocket. Extended replacement cost coverage options, when included in a policy, can provide a buffer above the stated limit, typically 20% to 50%, to help cover exactly that scenario. Without it, underinsurance can result in significant out-of-pocket costs even when you thought you were fully covered.