Last year's wildfires in California have produced another group of people who found out too late that they hadn't bought enough Homeowners insurance. Consumer advocates are blaming insurance companies and agents. The companies are blaming the insureds. The California insurance commissioner is blaming both but is also investigating the industry.
Ideally, the insurance transaction represents a partnership between insurer and insured (please, no comments about my fantasy life). Both parties should work together to ensure that the policy will do what the insured expects it will do. Implicit in that statement is the concept of setting expectations. The customer is entitled to clear explanations of what the policy does and does not cover. Nobody wins when the client finds out after a loss that the policy won't pay or won't pay enough.
Telling someone that they need to buy more coverage than they want is a tough thing to do, and a lot of people will not receive it well. Still, agents will do best for their clients and themselves by obtaining a valuation estimate of a home's replacement cost, recommending that amount to the client as the limit of insurance, and documenting the insured's decision. Not only will this provide a defense against an E&O lawsuit, but it's the right thing to do for the client.