The apocalyptic scenes from the Los Angeles wildfires are devastating. Those who have lost their homes face a long and uncertain recovery. Even before these latest fires, home insurance in California had become increasingly unaffordable, if you could even get it. Now, those impacted will have to decide whether to stay in a state facing not only more extreme weather, but an insurance market in utter crisis. Some of the displaced may not have enough insurance coverage to rebuild, or any at all.

Those of us not experiencing the wildfires firsthand are feeling grateful for our safety and our homes. But many of the dynamics playing out in California are worth considering wherever you live. In 2024, roughly 45% of all homes in the U.S. faced severe or extreme climate risks from wildfire, flood, hurricane winds, heat or air quality, according to a Realtor.com analysis. And being underinsured is not just a California phenomenon.

In fact, academic research published just last month suggests most U.S. homeowners don’t have enough coverage to rebuild their homes. Three business school professors concluded that of the nearly 5,000 policyholders impacted by a 2021 wildfire in a suburban area of Colorado, 74% were underinsured. That includes 36% who were so underinsured that their coverage limits were for less than three-quarters of their home’s replacement cost.

These figures become all the more concerning as average insurance premiums rise across the country, jumping 33% between 2020 and 2023, according to one analysis. Nowadays, when homeowners look for ways to lower their premiums, insurers may offer to reduce their coverage limits in response. That was the primary reason so many policyholders ended up with insufficient coverage for the Colorado wildfire, the researchers found.

So what? Simply having a home insurance policy may not be enough in 2025 – especially if you live somewhere threatened by extreme weather. Now’s a good time to check what your insurance would cover if you had to rebuild, as well as how much you’d get for temporary housing and other expenses incurred. If you’re already struggling with a high premium, shop around. Just think twice before cutting your coverage limits. You don’t want to discover you’re underinsured when it’s too late.

Related Reading

•   Home Insurance Premiums Are Way Up—Here’s How to Lower Yours (The Wall Street Journal)

•   Is Homeowners’ Insurance Required? Why More Than 6 Million Americans Don’t Have It (USA Today)

•   Why Cutting Costs on Insurance Coverage Could Leave You Underinsured (Rate Insurance)


photo credit: iStock/Jacob Wackerhausen

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