A homeowners policy can remain unchanged while local rebuilding costs, labor, and building requirements shift. That can leave a gap between a dwelling limit and the cost to rebuild after a covered loss.
The headline figure requires context. CNBC reported that Kenneth Klein, a law professor at California Western School of Law, analyzed about 74,000 California fire-related claims from 2018 through 2023. More than 70% of insured homeowners in that data were underinsured by an average of roughly 20%. The analysis concerns California claims; it is not a nationally representative estimate of every U.S. homeowner.
A separate timing issue is also relevant. The National Flood Insurance Program’s authorization is scheduled to expire December 11, 2026, unless Congress reauthorizes it. FEMA states that a lapse would affect its authority to sell or renew policies. Flood coverage also generally has a waiting period, so a policy started shortly before a storm may not provide immediate protection.
WHY THE CALIFORNIA PAYOUT NEWS MATTERS
The Associated Press reported on October 15 that California is moving to review and speed access to insurance payouts for Los Angeles wildfire survivors, with state officials and lenders involved. The AP report describes concerns about how insurance proceeds are handled by lenders and how quickly funds reach homeowners.
The issue is distinct from whether the original policy limit is adequate. A claim may involve questions about the amount of coverage, the timing and conditions of payment, and how funds held by a lender are disbursed. A policy review before a loss cannot determine how a future claim will be adjusted, but it can clarify limits, exclusions, endorsements, and lender requirements in advance.
THE COVERAGE-GAP MATH
Rebuilding costs have changed substantially. A CNBC analysis cited a U.S. Treasury report finding that replacement costs for property-and-casualty losses rose 45% between 2020 and 2023. That general increase does not predict the cost to rebuild a specific home. Local labor, materials, home features, debris removal, and current building codes affect an individual estimate.
Illustrative math, not a quote: If a home would cost $400,000 to rebuild and its dwelling coverage were 20% below that amount, the policy limit would be $320,000. The $80,000 difference could remain the homeowner’s responsibility, subject to policy terms, the covered loss, and any applicable deductibles. This example is not an estimate of any specific property or claim.
Market value is not a substitute for reconstruction cost. A home’s sale price can include land value and reflect local demand. Dwelling coverage generally concerns rebuilding the structure, not buying an equivalent property in the same market.
HOME INSURANCE AGENT CHECKLIST: REVIEW THESE ITEMS THIS WEEK
1. Compare the Dwelling Limit With Local Rebuild Costs
Find the dwelling coverage limit, often identified as Coverage A, on the declarations page. Compare it with a current local reconstruction estimate, using the home’s size and features. Do not use the home’s market price, tax assessment, mortgage balance, or original purchase price as the rebuild estimate.
Ask how the estimate was calculated and when it was last updated. Review whether it accounts for the home’s age, materials, roof, custom features, demolition, debris removal, and local labor and construction costs.
2. Review Replacement-Cost and Code-Upgrading Endorsements
Check whether the policy includes extended replacement cost coverage. This endorsement may provide additional coverage above the dwelling limit, subject to its percentage or dollar cap and policy conditions.
Also check for ordinance-or-law coverage. Rebuilding may require updates to comply with current building codes, including changes to wiring, plumbing, or structural elements. Confirm the endorsement’s limit and whether its terms apply to the property and loss in question.
3. Check Sublimits on Valuables
Review the policy’s special limits for items such as jewelry, art, guns, collectibles, electronics, and other higher-value possessions. A general personal-property limit does not necessarily mean every item is covered up to its full replacement value.
Ask whether items exceeding a category limit should be scheduled separately. Appraisals, receipts, photographs, or other documentation may be required. Confirm how the policy treats replacement cost, actual cash value, theft, and losses away from the home.
4. Check Flood Exposure and Policy Timing
Standard homeowners insurance generally does not cover ground-up flooding. Flooding can result from heavy rainfall, storm surge, or overflowing waterways, including in locations outside a high-risk flood zone. FEMA reports that one inch of floodwater can cause about $25,000 in damage; its flood insurance information explains why a separate policy may be relevant.
NFIP flood insurance generally has a 30-day waiting period, although exceptions can apply. Confirm the effective date and any applicable exception directly with the insurer or agent. Buying in early December may leave too little time for coverage to take effect before a January storm, depending on the purchase date and policy terms.
The NFIP reauthorization deadline is December 11, 2026. FEMA says that if authorization lapses, existing contracts are treated separately from the program’s authority to sell or renew policies. For availability and renewal questions, confirm current status with FEMA, the insurer, or a licensed agent. This timing is relevant during the Atlantic hurricane season and periods of wildfire risk, when flood exposure can also follow heavy rain or burn-scar runoff.
5. Create a Home Inventory
Record belongings with room-by-room photos or video. Include make, model, serial number, purchase date, and receipts when available. Store the inventory somewhere accessible if the home cannot be entered. Update it after major purchases or renovations.
A home inventory can help document possessions during a claim, but it does not change the policy’s limits or exclusions. Confirm that contents coverage, temporary living expenses, and deductibles match the household’s circumstances.
FIND AND VERIFY A HOME INSURANCE AGENT
A home insurance agent can explain policy terms, obtain quotes, and help identify questions about limits and endorsements. The agent’s license and authority should be confirmed for the state and insurance line involved. Ask for explanations in writing, including replacement-cost assumptions, exclusions, deductibles, and any limits that apply to flood or wildfire losses.
The National Producer Number (NPN) is an identifier for an insurance producer. It does not by itself confirm that a state license is currently active. Use the applicable state insurance department or the NAIC directory of state insurance departments to check license status and lines of authority. Current status can change and should be independently confirmed.
VerifiedAgent’s directory lets consumers search agent profiles and compare recorded information. For the California wildfire context, browse California insurance agent profiles. For a flood-exposed Gulf state, browse Louisiana profiles, or use the state selection page for other locations.
Profile records are examples of available directory information, not confirmations of current licensure or suitability for a particular policy. For example, Tareena Hardy’s profile lists NPN 16416215, Idaho Falls, recorded Health and Life licensing categories, and carrier appointment information. Home and property products have not been provided on that profile. Brenda Kaye Austin’s profile lists NPN 19435748, Katy, Texas, and carrier appointments that include a property-and-casualty carrier. Specific home insurance products have not been provided there either.
Both are claimed directory profiles. A claimed profile reflects profile ownership, not independent confirmation of current state licensure. Each agent’s license and authority should be checked with the relevant regulator before an insurance transaction.
SUMMARY
The reported underinsurance figure comes from a California fire-claim analysis, not a national survey of all homeowners. For a home whose dwelling limit was set years ago, a fresh local rebuild estimate can identify whether coverage may be below current costs. Review extended replacement cost, code upgrades, special limits, flood protection, and household records. Policy terms and current licensing status should be independently confirmed before relying on coverage information.
