These 14 States Are Facing Higher Real Estate Insurance Premiums—Is Your State On The List? Illinois leads the U.S. with a 22.7% increase. 13 other states had considerable increases.

In this article

A significant challenge for landlords is to find the right affordable insurance coverage for their rental properties. In addition to fulfilling the requirements to obtain a mortgage, landlords also want to ensure their investments have the proper financial protection in place in case an unfortunate event occurs. 

The insurance industry has not always offered the best solutions to rental property owners and managers, especially for tech-savvy investors.  

The Different Types of Insurance You Can Get

Landlords will often be offered a standard Homeowners Policy (HO) for their rental property. While an HO policy can work, it doesn’t do a great job of matching the specific needs of a landlord to the coverage offered.  

For example, an HO policy might force the policyholder to get contents coverage (which protects your jewelry, furniture, electronics, and other similar possessions) of at least 50% of the home’s replacement cost. While this makes sense for many owner-occupied homes, this is a waste of premium for landlords.  

A better option for landlords might be a Dwelling Policy (DP). In addition to not forcing a high amount of contents coverage, the DP policy provides coverage for losses arising from renters, which an HO policy may not cover. Landlords can typically choose between two different kinds of dwelling policies: a Dwelling Special policy, or DP-3, typically provides more coverage than a Dwelling Basic (DP-1) policy.  

Another option that might be enticing to some landlords, as well as property managers, might be something called a Master Policy. With a master policy, properties across multiple states and of varying risks can be insured collectively under a single certificate of insurance. For busy property managers, this is often a very convenient solution that doesn’t require the insurance purchaser to keep track of multiple policies, which can be cumbersome. Even better, there’s usually only one monthly premium to cover all of the properties.

Not all rental properties require the same coverage. There are different needs for short-term rentals compared to long-term rental properties. Similarly, if you own a “fix-n-flip,” your insurance needs might be different. Ensure you provide a good description of your properties and needs to the insurance agent so they can offer you a solution that’s right for you.

Premiums Are Increasing

Regardless of the type of policy, many landlords might have noticed increasing insurance premiums over the last couple of years. Since January 1, 2021, the average filed premiums for personal property insurance have increased by around 8%. Starting in Q2 2022, the increases have been higher, suggesting that many landlords could face even higher premiums as time progresses.  

• Average change of personal property premiums from 1/1/2021 – 12/31/2022 = 8.1% 
  • Among benchmarked competitors:
    • Average: 7.5%
    • Median: 8.9%

The premium changes you face could depend on several factors, with location being one of the most important. Here are the states that have faced average premium increases since January 1, 2021, of around 10% or more:

Why Are Premiums Increasing?

Not surprisingly, the increased frequency and severity of major catastrophic events across the country are largely to blame. Losses caused by strong wind events (hurricanes, tornadoes, etc.), hail, and weather-related water damages collectively account for more than half the total claims filed by homeowners.

In 2021 alone, global catastrophe losses totaled $116 billion, with North America accounting for 68% of all catastrophic loss dollars. For the period 2011-2020, the total insured losses for U.S. catastrophes (in 2020 dollars) were more than $518.1 billion. 

These catastrophic events directly impact insurance premiums by increasing the losses insurance carriers have to pay out as a result of these events. They also have a secondary indirect impact since these events raise the costs of purchasing reinsurance.  

There are other reasons why insurance premiums have been increasing. The high inflationary environment over the past 12 months and supply chain issues that delayed repairs have also contributed to the rising premiums.

How You Can Reduce Insurance Costs

While landlords can do very little to mitigate catastrophic events, inflation, or global supply chain issues, there are things that they can do to reduce the impact of increasing insurance premiums.  

• Enhanced safety measures - Landlords should make sure various loss prevention devices (smoke alarms, burglar alarms, deadbolts, etc.) are properly installed and regularly tested. Most carriers will provide discounts for these safety features.
• Roof repairs - Roof damage and water leaks are significant sources of losses. Properties with well-maintained roofs will likely pay lower premiums.
• Pride of ownership and general maintenance - Insurance carriers inspect properties and can tell which properties have been maintained well. Poorly maintained properties might be required to pay higher premiums or may not be eligible for coverage at all.
• Location-specific safety measures - For properties in wildfire-prone areas, make sure to clear all nearby brush that could light on fire. Similarly, installing storm windows in at-risk areas helps reduce loss propensity and leads to lower premiums.
• Updating older properties - If the electrical, HVAC, or plumbing systems have not been updated in the last 30 years, renovating those systems and bringing them up to code could go a long way towards managing premiums.
• Higher deductibles - Particularly in coastal areas, increasing your deductible will help reduce insurance premiums. Of course, you should be comfortable with the amount of risk you’re willing to retain in the event of a loss, so discuss the appropriate deductible with your insurance advisor.
• Discounts - Make sure you’re receiving all the discounts that you qualify for, which could include safety features, full-pay discounts, multi-location, or bundling discounts. Some companies may even offer discounts for having your property managed by a professional property manager or even for getting your policy well in advance of the desired effective date.  

Conclusion

All insurance companies consider different aspects of a property when quoting a premium. So it usually helps to shop around. Steadily, for example, does price comparison for your rental property quote across a large number of carriers nationwide, ensuring you get the best price on insurance in your market. Treat your rental properties like a business and find what makes the most financial sense for you.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.