Why So Many Homeowners Are Underinsured — and What Needs to Change

by Rich Arzaga, CFP®, CCIM

(A response to Venessa Wong’s MarketWatch article, “People pay a lot for insurance. Sometimes it’s not enough to protect them from disaster. ”)

I’ve been following #venessawong’s MarketWatch series on the rising costs and declining reliability of personal insurance with both great interest—and growing professional frustration. The latest installment (linked above) captures what so many families are now discovering the hard way: insurance they thought would protect them often doesn’t.

Before I continue, note that I write this as an educator and financial planner—pretty much in that order. Insurance sales play an insignificant role in my business. So, I have no axe to grind here; I only have concern (and criticism) for the gap between perception and reality that so many consumers face.

The Real Problem: Confidence Without Understanding

One of the article's opening examples perfectly highlights the problem. A homeowner said she was “confident she had purchased the highest, most comprehensive insurance package”—only to learn later that her policy did not cover floods. That contradiction says it all. It cannot be comprehensive if it excludes one of the most common and devastating risks.

The same story repeated with her storage unit. The gap between what she believed was covered and what actually was led to tens of thousands of dollars in unreimbursed losses.

This is the core issue: what people believe they have versus what they actually have when a claim is filed.

Solution #1: Work With Qualified Brokers, Not Just Agents

Consumers deserve professionals who approach insurance with the same rigor and accountability expected of CFPs, CPAs, or Enrolled Agents. That means working with independent insurance brokers—not captive agents—who:

• Can compare coverage across multiple carriers;

• Follow a defined review and recommendation process; and

• Acknowledge a fiduciary-like responsibility to make suitable recommendations.

When a broker recommends appropriate coverage and a client chooses not to follow it, there should be an explicit written acknowledgment that the client is declining coverage and accepting the associated risk. That simple step goes a long way toward reducing “I wasn’t told” moments and protecting both parties from painful misunderstandings later.

Solution #2: Make Annual Insurance Reviews Non-Negotiable

Insurance coverage should not be a “set it and forget it” product. Annual reviews help ensure that coverage keeps up with changing property values, inflation, and risk exposure. These reviews are typically short but invaluable—an opportunity for education, adjustment, and accountability.

If a policyholder declines these reviews, that’s their decision. But they should understand that opting out means assuming the risk that their policy may not be sufficient when disaster strikes.

Shifting Responsibility Back Where It Belongs

Ultimately, I’m placing responsibility squarely where it belongs: with the insured. While carriers and agents can always do better, consumers must take ownership of the policies they sign.

We can’t control natural disasters—or insurance company claims practices—but we can control how informed we are, which professionals we work with, and whether we review our coverage regularly.

We can also control where we live and what risks we take on. Those are personal choices. Let’s start treating them that way.

#richarzagacfp

#homeownersinsurance

#insuranceplanning