Data we collected from the Gray and Oregon Road wildfires in 2023 shows how real the risk of being underinsured is.
Two-thirds of the people who lost their homes in those wildfires discovered they were underinsured. They had to pay out of pocket for the balance of what their insurance didn’t cover to rebuild their homes. Many ran out of additional living expense coverage, leaving some without enough financial support while their homes were being rebuilt or repaired.
What underinsured means
If you're underinsured, it means your home insurance policy covers less than the cost to repair, rebuild, or replace your home and your possessions after you suffer damage or a total loss to your home.
How many homeowners become underinsured
If you buy a $400,000 home and insure it for $300,000, you may have enough coverage to repair or rebuild the home at the time the policy was written. Since 2021, the cost of materials and labor has increased by 7%. So, your initial policy coverage would fall short of the increased cost to rebuild the home at $321,000.
This issue is not unique to Washington state. A consumer alert from the NW Insurance Council estimates nearly two-thirds of all homes in the U.S. are underinsured.
You can still be underinsured if your policy covers replacement cost
Replacement cost policies pay up to the amount listed on the declaration page to replace what was lost with something comparable that’s new. Some policies offer an option for "guaranteed" or "extended replacement,’" which usually adds a percentage over the regular dwelling coverage limit if your costs are higher. But even this extra percentage has a limit.
How to avoid being underinsured
Avoiding the risk of having an underinsured home is easier than you might think. Here are some straightforward steps you can take to help your insurance coverage keep up with the cost to rebuild your home.
Schedule an annual policy review
Request an annual policy review with your agent or your broker. You can schedule this free service at your convenience, either in person, over the phone, or via video. Think of it like your annual checkup with your doctor. Wouldn’t you do the same for your home's insurance coverage?
If you have questions about insurance, your policy, or your coverage, ask one of our insurance experts for help.
Ask your agent about helpful endorsements
Many insurance companies have products that adjust your coverage over time. Ask your agent or broker about:
- Inflation guard automatically increases your dwelling limit annually. This helps, but it may not fully match regional cost spikes, so you should still review your limits yearly with your agent.
- Extended loss coverage, sometimes called extended limits, provides additional coverage beyond your dwelling limit if rebuilding costs more than expected.
These types of endorsements may require you to insure your home for 100% of its value for it to apply. Be sure to ask your agent or broker how each works.
Don't forget about disaster-specific coverage and other gaps
Standard homeowner policies do not cover:
- Flood damage
- Earthquake damage
- Sewer or drain backups
- Costs to meet new building codes, ordinances, or laws
- Land movement and landslides
- Gradual water leak damage and mold
Talk to your agent about separate protections for these events and visit the National Flood Insurance Program to learn more about flood insurance.
Don't buy something you don't need
Insurance is a service that you pay for, and you can make choices about what you get. Depending on what you get, it’s possible that your insurance won’t cover all costs from rebuilding your home. Approach agents or brokers with an interest in finding out what they can do for you. If they recommend something, make sure they can explain it in a way that makes sense. You have the final say in what you buy.