I don't have this problem in practise. It's not "break flow to switch modes" for me. I don't type this way. There's always as much movement as there's typing, especially while programming. Even when writing prose I exit the insert mode each time I think of what to write next making this always a good "undo point".

If I make a typo while in the insert mode I just remove last character or last word. I guess you could argue that this is something that undo should also cover but I don't see much need for that.

I'm not in the insert mode, exiting to normal mode for movement and undo. I'm in the normal mode entering insert mode to write.

There are alternatives to "undo", which are probably better suited to "undo last word" without making "what will undo undo" more mentally complicated. Having undo reverse the last edit, whether that's a word or a few words or adding an argument definition to a function, or adding an "if" block -- makes it very easy to keep in your head. "I want to undo that last thing I did".

The alternatives are:

    - Control-W (delete the last word, stay in insert mode)
    - "W" to move back a word (or "B" to move back a big word).  So: <Esc>BC

There's apparently also a recipe for setting up vim to insert undo points whenever you hit space, so you could also enable that for the files you want to do that on.