Homeowners Urged to Avoid Underinsurance as Rebuilding Costs Rise

Experts warn that many homeowners lack adequate coverage to rebuild after disasters.

Mar. 3, 2026 at 7:07pm

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A new study found that 74% of homeowners who filed insurance claims after the 2021 Marshall Fire in Colorado were underinsured by an average of $139,000. With rebuilding costs rising due to inflation, labor shortages, and natural disasters, homeowners are being urged to review their insurance coverage and consider extended or guaranteed replacement policies to avoid financial ruin if their home is destroyed.

Why it matters

Underinsurance has been a widespread problem after disasters, leaving many homeowners unable to rebuild. As rebuilding costs continue to rise, it's crucial for homeowners to ensure they have enough coverage to fully replace their home if needed.

The details

The study "Coverage Neglect in Homeowners Insurance" analyzed nearly 5,000 policyholders affected by the Marshall Fire and found that many homeowners simply accept the coverage amount suggested by their insurer, which is often insufficient. Rebuilding costs are increasing due to factors like inflation, labor shortages, and the spike in demand for materials and labor after natural disasters. The median cost to rebuild a home in the U.S. is now around $280 per square foot, or about $410,000 for a typical American home.

  • The Marshall Fire swept through the Boulder suburbs in December 2021.
  • More than a year later, most homeowners who lost their homes in the fire had not begun to rebuild.

The players

Emily Rogan

Senior program officer for United Policyholders, a consumer advocacy group that has worked on underinsurance issues after disasters.

University of Colorado

Researchers at the university conducted the "Coverage Neglect in Homeowners Insurance" study.

Home Builders Institute

Estimates $2.7 billion is lost annually in the U.S. due to delays caused by labor shortfalls.

NerdWallet

Analyzed 2025 data from climate risk modeling firm First Street to determine the median cost to rebuild a home in the U.S.

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What they’re saying

“People are surprised to find out that what they've been paying for isn't enough to rebuild their home after a major loss.”

— Emily Rogan, Senior program officer, United Policyholders

“The new normal is having to pay more attention to your insurance. If not, you're just paying all of this money for something that isn't the safety net you were sold.”

— Emily Rogan, Senior program officer, United Policyholders

What’s next

Homeowners should use online rebuilding cost calculators or consult local insurance agents and contractors to determine the current cost to replace their home, and then ensure their dwelling coverage limit reflects that amount. They should also consider extended or guaranteed replacement coverage, as well as inflation guard, to protect against rising rebuilding costs.

The takeaway

With rebuilding costs on the rise, homeowners must be proactive in reviewing and updating their insurance coverage to avoid being underinsured and facing financial ruin if disaster strikes. Taking steps to ensure adequate coverage is crucial, especially for those living in high-risk areas.