Home Insurance Safety Net Can Have Big, Costly Holes, Reports Find

Americans shell out thousands per year for homeowners insurance to protect their homes if disaster strikes. But that financial protection often isn’t as complete as homeowners expect.

Deductibles and coverage limits can leave homeowners paying out of pocket nearly a third (29%) of property losses if they need to file a claim, according to the New York Federal Reserve. In fact, in the past three years, nearly half of homeowners had to pay out of pocket for weather-related home damage, a Hippo Holdings report found.

And 22% of those who paid out of pocket still carry debt from paying for the damage, Hippo said.

Those who can least afford a surprise bill are often the ones carrying the most risk, according to the Fed’s research.

Understanding exposed risk

For policyholders, that 29% doesn’t mean insurers are automatically paying only 71% of every claim. Instead, the Fed’s researchers looked at typical losses and calculated how much risk homeowners retain because of standard insurance contract structures like deductibles and policy limits.

Deductibles require policyholders to pay out of pocket before coverage begins to pay. Coverage limits cap total payouts. The New York Fed noted that the median deductible in its dataset was around $1,000 — about 0.3% of a home’s reconstruction value. Many minor losses fall below that threshold, meaning whether policyholders receive a payout or not often hinges entirely on the deductible.

Why insurers leave homeowners at risk

Deductibles exist partly to combat what economists call “moral hazard.” Insurers can’t monitor every property to ensure owners maintain roofs or clear dangerous trees. The theory of moral hazard holds that if insurers fully compensated all losses, owners might have less incentive to maintain their homes and prevent damage.

This setup keeps costs manageable for insurers, but it creates a trade-off: Insurers control their expenses by ensuring homeowners keep skin in the game.

And the financial burden of home insurance can be significant. In 2025, the national average cost of homeowners insurance was $2,948, according to Insurify, an insurance-comparison website. Insurify data scientists predict the average will rise to $3,057 by the end of 2026.

Financial vulnerability and disaster exposure

Researchers found that homeowners with lower credit scores tended to pay higher premiums yet ended up with greater uninsured exposure.

Households with tighter budgets value protection the most, yet their policy terms frequently leave them least protected against a major bill, Fed economists said. While credit scores correlate with this pattern rather than directly cause it, the trend reveals where financial risk concentrates.

Hippo’s third annual Extreme Weather Report found that nearly 60% of homeowners have experienced weather-related home damage over the last three years, and half of them have paid out of pocket. Of the 22% still carrying debt from it, 71% have carried that debt for at least two years.

Moreover, nearly 80% of homeowners said they’re not financially prepared for an unexpected weather-related repair. They lack either the savings to cover the cost or the ability to complete the work themselves.

What homeowners can do

Home insurance premiums have risen 36% in the past three years, according to Insurify. But homeowners can take steps to hold down costs while ensuring they have adequate coverage.

• Don’t base policy selection solely on premium price. A very low premium may come with less-than-adequate coverage. A coverage shortfall could leave you paying more out of pocket if you need to file a claim.

• Be sure you understand all your deductibles — and can afford them. A higher deductible lowers your premium, but this only works if you have sufficient savings to cover out-of-pocket costs after a disaster. Some states also have separate hurricane or wind deductibles that can affect your out-of-pocket costs.

• Work on your credit. Most states allow insurers to consider credit information when setting premiums. Homeowners with excellent credit can pay up to 26% less for a policy, according to Insurify.

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