Too Many Americans Are Mistaken About Insurance: Surveys Say | Insurify

Many of people's most valuable possessions require insurance — including homes and vehicles. And 86% of Americans think they understand how their policies work and what they cover, according to a survey by Trusted Choice, which represents the Independent Insurance Agents & Brokers of America Inc. (the Big "I").

But an alarming number don't understand that homeowners insurance doesn't cover flooding. And roughly half of those the Big "I" polled are mistaken about factors that affect their car insurance costs.

Flood insurance confusion

Standard homeowners insurance doesn't cover flooding. Yet 56% of those the Big "I" surveyed didn't know that. Those results echo findings from an Insurify report, which found 60% of homeowners didn't have flood insurance and 13% believed their standard home policy would pay for flood damage.

More than 9% of all U.S. properties — including homes and businesses — are at risk of experiencing at least one flood of a depth of one foot or more every year, according to the Congressional Budget Office. Since 1998, 99% of U.S. counties have experienced a flood, with more than 40% of flood insurance claims coming from areas considered at lower risk for flooding, FEMA says.

"We know that flooding is common and costly in the U.S.," says Cassie Sheets, a data journalist and author of Insurify's report. "And it's becoming even more common and expensive. FEMA data shows that National Flood Insurance claims soared 660% in the first two decades of the 21st century. It's becoming more likely that people who think they'll never need flood insurance will experience a weather event that makes them regret not having it."

Mistaken beliefs about home insurance

The price of building materials in an area can affect home insurance costs significantly. As more frequent severe weather events cause more damage to homes, leading to more home insurance claims, rising material costs make claims more expensive.

Reconstruction costs increased by 4.6% from April 2023 to April 2024, according to insurance analytics company Verisk.

And while homeowners insurance and flood insurance will typically cover the materials cost to repair damage from covered events, they won't pay for materials or fixtures for voluntary home renovation. Yet 70% of those the Big "I" surveyed thought they would.

In addition, standard home and flood policies will typically pay to replace only personal property if homeowners can provide a reliable list of major household items lost or damaged in a covered situation. But 46% of survey respondents either didn't have or were unsure if they had an inventory of their personal property.

Auto insurance misconceptions

Washington, D.C., and every state but New Hampshire require drivers to have at least a minimum amount of liability coverage. Yet many drivers don't understand how car insurance works or the factors that can affect their insurance costs, the Big "I" survey reveals.

More than half didn't know that their standard auto insurance policies wouldn't cover them if they used their vehicle for business purposes. And 57% didn't know that a parking ticket wouldn't affect their auto insurance premiums.

What's next: Building consumer knowledge

"The good news is, consumers can find a lot of insurance information easily available online," says Sheets. "Insurance companies, marketplaces, and agents all offer educational content that can help policyholders better understand the protection their insurance gives them — and what it doesn't cover."

Agents are also a source of information, says Kevin Brandt, executive director of Trusted Choice.

"With their unbiased guidance and personalized approach, [independent agents] empower individuals to navigate policies with clarity and confidence, ensuring they truly understand their coverage and make informed decisions," Brandt stated in a release announcing the survey results.