Why Landlord Insurance Premiums Are Skyrocketing in 2026 (And How to Stop It)

0:00Today, we're tackling one of the biggest questions in real estate right now. Why are insurance premiums rising so fast and what can rookie landlords actually do about it? Whether it's fire risk in California, floods in the Gulf, or insurers pulling out of entire states, rookie investors are facing a whole new kind of deal breaker. So we brought in someone who's not just watching the industry shift, he's actually building it. Darren Nix is the CEO of Steadily, a landlord-focused insurance platform and a real estate investor himself. Today, he's here to break down what's happening, what's coming, and how rookies can protect themselves in this volatile new landscape.

0:43This is the Real Estate Rookie Podcast. I'm Ashley Kerr. And I'm Tony J. Robinson. And let's give a big warm welcome to Darren. Darren, thanks for joining us today, brother. Glad to be here. Thank you. Darren, I want to start off with why are insurance premiums rising so fast? And is there anything that rookie landlords can do about it? One word, hailstorms. So over the last 10 years, the frequency of hailstorms has increased across the US. And the rate at which folks are filing roof claims has increased even faster than the number of storms. And the insurance industry took quite a while to catch up, but now they have.

1:19And as a result, we as real estate investors are seeing very rapidly rising insurance rates, in some cases, 25, 50 % year over year. Darren, does this have anything to do with, I've seen the social media videos of roofers who are actively going out and basically showing homeowners how to submit a claim to get their roof replaced so then they make the sale on it. Yes, that's about 80 % of it. And the reality is there's no such thing as a free lunch. So if the number of roofs being replaced is going up, then insurance premiums are going up too. Because at the end of the day, the dollars are moving from one bank account to another, and it's ultimately the insurance policyholder that's going to be paying.

2:00How much of the, you said that's 80 % of it, so the other maybe 20%, is that just like climate related? Or do you think it's like landlord mismanagement where they're not doing enough preventative maintenance? Like what else is driving this aside from maybe some of the bad actors in the industry? The other 20 % is actual increase in hail frequency. So if you look at storm data, you have it going back 60, 70 years, and there has been an increase, but it's fairly small. And so that's the 20%. The 80 % is people's behaviors have changed. And by behavior change, I mean, there's a lot more people knocking on doors saying, hey, there was a storm last week.

2:38Would you like to get a new roof? and that's what's driving up insurance claims. And so what that leads to is the answer to the second part of your question, which is what can you as a rookie do to reduce your cost of insurance? There's good and bad news. The bad news is that this year, there's nothing you can do. Your price is already baked in, but next year and the year after that, the single biggest factor that will drive your insurance premium up is having had a claim at any point in the last 10 years. And so the thing that rookies can do is to set themselves up so that they're going to have fewer claims across all of their properties.

3:17And over their lifetime as an investor, that's going to save them a ton on insurance. Because this gets to a point that is going to underline everything we talk about. If you, over your lifetime, get paid, let's say,$100 ,000 in insurance, you've probably paid$140 ,000 for those claims. Let me put it differently. For every dollar of claim payout that an insurance company makes, they have to collect about$1.40 in premium to cover the cost of adjusting the claims, litigation, claims adjusters, support reps, etc. etc. And so for us as investors, the single thing that we can do to reduce our cost of insurance is just to buy less of it.

4:01And in order to buy less of it, we have to set ourselves up so that we can cover the small things that happen to our properties out of pocket and run higher deductibles so that we're not having to buy horrendous amounts of insurance at a very high cost. But it takes time to get there. Darren, what does it mean when a market becomes uninsurable. For example, I'm in Southern California. I'm maybe 50 miles east of where the Palisades Fire and the Eden Fire were. And my insurance writer for my primary residence left the state. And we had a really hard time kind of shopping around trying to find someone new.

4:36So what does it mean when a market becomes uninsurable? It means one of two things. It means that the prices have gotten so high that no one is willing to pay those prices anymore, or that the regulatory market has gotten so difficult in that state that no insurance company wants to operate there. And it's usually number two. There's a saying in insurance that there's no such thing as bad risk. There's just bad rates. And what they mean by that is if you approached an insurance company and pointed to a building that was on fire and said, what would it cost to insure that property? There is a number at which it would make sense to insure that building.

5:13It's probably something close to 90 % of the value of the property, but there is a number. But no one would pay it. And so if prices get so crazy high in a market, you might see insurance companies stop offering coverage because nobody wants to buy it at that price. But that's pretty rare. Specifically in California, what you're talking about is the California regulatory environment is set up in such a way that there are very strict controls on how much insurance companies can charge for insurance. And that tends to hold down prices for insurance, which is nice as an investor that keeps a lid on our prices.

5:51But the problem is that over time, if the actual losses get totally out of whack with how much premium the insurance company is bringing in, then they're losing money every year. And at some point, they'll go back to the state and say, hey, I need to raise rates because I'm losing money every year. And if the state says no, then the only option that the insurance company has is to pull out. And that's what happened in California. For three years, there was a moratorium on any price increases for insurance. And meanwhile, inflation was going through the roof. So most of the admitted insurance companies in California, especially those that were riding in wildfire areas, have lost so much money on California.

6:32And so their response was to pull out. Darren, one follow-up to that, you talk about inflation, and obviously that's impacted everyone, right? Investors, non-investors, just people living their everyday lives. How has inflation, whether it be labor, raw materials, is that also maybe a driving factor in what's happening with insurance premiums? Lumber has gone up, labor has gone up. How big of an impact is that on insurance premiums right now as well? The price of insurance historically has tracked almost exactly to the price of inflation as long as other behavior isn't changing. So if you see that inflation last year was 5%, you should also expect that your insurance is going to go up 5%.

7:13It's only when things get really out of whack, like during COVID, where the cost of construction materials and the cost of construction labor was much more inflated than the overall inflation rate for the country. And that in turn did impact the price of insurance. One of the good news, though, is that that has cooled off a lot. And in some states, insurance rates have started to come down. So some folks in California and Iowa, for example, are actually seeing rate decreases year over year. How can investors accurately underwrite a deal with insurance costs? Are there things that maybe investors may be doing wrong or some tips that you have to get an accurate number when you're trying to analyze a deal?

7:58What I'll typically do when I'm looking at a new deal is go and find one of the calculators where all I have to do is enter in the address and the year bill to the property and come up with a ballpark number. And that's generally going to be plus or minus 25 % of the real number. So that allows me to compare a lot of properties. I know that Biggest Bockets, for example, through steadily has that feature built into the website, and that's great. It saves a ton of time. Once I get down to two or three properties that I'm serious about, I'll typically call up my agent and say, these are the three properties.

8:28I want an actual quote for these. I'm not ready to buy yet, but tell me what it's going to cost. So then in case there's a surprise, I will know about it. And the things that are going to drive surprises on the price of insurance are going to be the year built of the property and the roof condition and how much active work is going on on the property. vacant and it's getting rehabbed, that's going to be a substantially more risky property from an insurance company's perspective than one that's rented long-term and has consistent tenants. Darren, I'm also curious because there's a lot of people who are holding properties right now.

9:06How can we stress test our current portfolio? Put another way, how do I make sure that my market, or at least how do I identify whether or not my market is at risk of insurers pulling out? Are there certain cues that I should be looking for to know if I'm maybe at a greater risk of my insurance provider leaving? It's pretty stable year to year across different geographies. So, for example, if you own properties in Arizona, Indiana, Illinois, nobody's pulling out of those markets and you should be in good shape. If you're in California, Florida, or Texas, maybe even Washington state, those are states that have a lot of weird dynamics going on from a loss perspective, and that's going to trickle into weird insurance behavior.

9:53Coming up, we're going to break down the difference between a homeowner and landlord insurance and how misunderstanding this could actually cost you thousands. We'll be right back after this short break. For decades, real estate has been a cornerstone of the world's largest portfolios, but it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise flagship fund. Now you can invest in a$1.1 billion portfolio of real estate, starting with as little as 10 bucks.

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13:18They need to make sure that the policy specifically speaks to the fact that they don't live in it. So where homeowners sometimes get themselves into trouble is where they bought a homeowner's policy on a property, and then they keep that policy in place, but they move out. And they buy another property and move somewhere else, but they keep that dwelling on a homeowner's policy. Now you're in a weird situation because, one, you might have some vacancy that the policy never contemplated. Two, that insurance policy that you had on your home was underwritten, assuming that you live in it. They were underwriting you to live there.

13:54And as soon as you bring in tenants, now the types of losses that you're gonna experience on that property are going to change. And your policy is likely written so that it doesn't cover that. And so the overall rule that applies to every scenario is you can generally let insurance ride without checking on it for years at a time, as long as nothing's changed. But when something changes, like you move from a long-term rental to a short-term rental, you decide to do a bunch of work on the property, you add an ADU, or something big, like you actually move out of the property, that's when you need to call your insurance company and say, this thing happened.

14:33I want to make sure that my policy is going to cover this scenario. Something that's made my life a lot easier as an investor is back in the day, if I really really was worried about something every once in a while I would go and actually find my policy and go look at that specific section and see how many days of vacancy am I covered for for example but now with chat gpt it's super easy so when I have a question I just take the policy upload it to chat gpt and just ask the question and it's so good at finding the thing and says, yep, you're covered for 45 or 60 days or what have you. And that difference from homeowners versus landlord insurance that you're asking about, what it really goes to is what are the different scenarios that it's going to cover?

15:18Because the landlord policy contemplates tenants, whereas the homeowners policy does not. I love the use of ChatGPT for these big, dense contracts that we get because oftentimes we don't read the fine print, but using those I think is a great way to understand all those nuances. And I guess along that same line, if we even maybe take a step back before we get the actual policy, usually as an investor, we get a quote from different insurance providers. Can you break down the anatomy of an insurance quote? And what are the things that are typically included? And what do each of those different categories usually represent?

15:54What do they stand for? The three things that you should look for in your policy that matter the most are number one, the replacement cost. methodology. We'll come back to that. Number two is your dwelling limit, which is what it sounds like. And number three is your all payrolls deductible. So this is the, in most cases, what is your deductible going to be? The first one is a gotcha and it bit me on my very first rental property. I bought a three unit walk up in Chicago. And when I was talking to my insurance agent the very first quote that i got was for six thousand dollars a year for it and my hair was just blown back i was like that's more than i'm going to make in rent in a month on this property this is crazy and so i went back to my agent and said i want the cheapest policy you can get me that's literally what i said and so a week later he came back with a policy when that was 2700 a year and i said great i bought it and two years later i can tell this story is about to get much worse after oh yeah oh yeah two two years later i looked at the policy and uh i noticed this this term on it that said acb it's like acb what is acb so i call him up and i'm like what is this acb thing and he says oh that's actual cash value i'm like i don't i don't understand explain it to me and he's like well there's replacement cost which is what you think it is and then there's actual cash value.

17:23And it's like, so for example, if you have a 20 year old roof, the actual cash value of that$30 ,000 roof is like 2000 bucks. So if your roof gets damaged, they're going to have the insurance, your insurance policy can pay$2 ,000 for that roof because that's the actual cash value. And so that was, it was an eyeopening moment for me because I realized two things. One, I didn't actually want literally the cheapest policy. I wanted the most affordable policy that would give me replacement cost. And two, I need to be very mindful of when a thing happens, what is it that I want my insurance to do? So for example, a limit that a lot of people ignore is their liability limit.

18:09Liability limits might be 300 ,000 is kind of the lowest that you see, half a million is pretty typical. And then go up to like a million, 2 million. And what that covers are the events that happen about once in 100 years to most investors, like you'll probably go your entire career as an investor without them happening. But when they do happen, they're fatal. Like they will bankrupt you. So for example, we have 110 ,000 customers across the country. So if it can happen, it has happened to us. Like we've seen it all. And we've had multiple customers that unfortunately have had homicides happen on their properties.

18:45And it's not a big number. It's like less than 10 people out of our 100 ,000. But when it happens, those are lawsuits that are going to be$5 to$30 million. And so any assets that the investor has are likely going to end up getting paid in those claims. And that's when folks are wishing that they had a million or even an umbrella policy with$2 to$5 million in coverage to cover their legal defenses and to cover settlements and things like that. And so if I was going to add a fourth thing to look at when you're looking at an insurance policy, we've got what's the valuation method? Is it ACV or is it replacement cost?

19:27We've got your coverage limit on the property, your deductible, and then lastly, your liability limit. When I got started, liability was always my biggest fear. I thought the day I closed my first property, the roof was going to blow off and I couldn't pay to replace it and the tenant was going to fall down the stairs and sue me. And I actually just saw an article today where some woman had tripped over a curb in a Target parking lot. Target parking lot. I saw that there. Yeah, won$11 million. Yeah. And it was because the curb wasn't up to code and there was actually code violations that were engrossed in it.

20:01But it was just like, wow, just that simple thing happening could like, you know, that would destroy me if I didn't have the right insurance coverage, you know, a lawsuit like that. And this is a feature that I think a lot of us know very well is that in the United States, there's a very huge gulf between will you win a lawsuit and will you get sued? And so there are many, many, many things that you will get sued for that you might be in the right and you might ultimately win that lawsuit, but you'll spend half a million dollars over the course of four years defending it. I used to work for this auto dealer and they would get like the garage door once came down on somebody's head or whatever, the automatic door and like tapped their head and they sued for like a million dollars.

20:45And the insurance company literally said to them, it is cheaper just to settle than to actually go through. And like that was the whole thing was like anytime somebody tried to sue them, basically they just the insurance company said, we're going to settle. It's cheaper for us. And everybody would have been. Yeah. It's so unfortunate that we live in such a litigious society where, you know, even if you are not in the wrong, you're still forced to settle for financial reason because it makes more sense. But I think you bring up a really important point, Darren, about the difference between the dwelling, the actual property itself and covering that, but then also the liability that comes along with people coming in and out of your residence.

21:24Most of my properties are short-term rentals. So not only do I have, you know, one family staying there for 12 months, We'll have multiple families staying there for two days and we're doing that multiple times a month, right? So even more kind of liability that we expose ourselves to. So on that note, are there any optional coverages that maybe rookie investors often skip, but that you think would actually be very, very beneficial for them to include? One of the ones is specific to short-term rentals. So a landlord insurance policy typically assumes that the building is vacant. And so you might have a refrigerator or a washing machine or something like that, but you don't have a lot of contents in the property because it's not furnished.

22:03So you don't need to buy, let's say that you have a$400 ,000 property. You don't need to buy$150 ,000 or$200 ,000 worth of coverage for contents the way that a homeowner would because it's empty. And so that actually lowers the price of insurance. But if you have an STR, and especially if it's nicely furnished, if everything in that property got swept away all the way down to the studs, what would it cost you to completely re-outfit that home? In many cases, it's 25%, 30%, 40 % of the overall cost of the property. And so that's something to look at because a conventional landlord insurance policy is going to assume that it's basically empty.

22:47So we'll have a low contents coverage. If you have an STR, you're going to want to kick that up and think hard about literally it's a shell. There is nothing in it. No appliances, no fixtures on the wall, nothing. What would it cost me to get it habitable again? And that's the amount of contents coverage that you need. And it's very often three times more than people initially think. Somebody came to me the other day and said, my wife actually, she's like, Darren, I'm looking at our insurance policies here for our house. What do you think our contents would be on the house? And I said, I don't know.

23:20Let me think. My laptop, a few other things, like 20 grand. And she's like, no, it's like 150K. It adds up quickly. Like you think of everything. Just my kid's sports memorabilia. My God, I have to get security just for their bedroom with all the stuff they're collecting. Well, Darren, I'm curious as to before a rookie investor even buys a deal, what are some red flags they should look out for before even purchasing a property that may increase their premium? For example, I went to go buy a house, a duplex one time, and it was considered a row house because it was so close to the building next to it.

24:02And I had a really hard time finding insurance. And I actually had to pay a lot more than I would have if the property was like any of my other duplexes in that same town. But because it was so close, the premium was outrageous. So are there like red flags across the board that rookie investors should look out for before even purchasing a property? The only real red flag that I can think of is knob and tube wiring. As soon as you go to a world where you're not running on a circuit breaker with updated electrical, the number of options, like the number of carriers that will offer coverage for that property gets really small.

24:38And that's going to make it take a lot longer to get insurance and the cost is going to be higher. It can happen. You can still get there, but it's going to take more time and money. The other things are factors that are going to drive up your price 10, 15%. So yes, you mentioned row houses. And the reason for that is fire. So if you think about insurance companies, they're looking at the last 100 years of data and they're saying, when did I lose a lot of money? And when they have one standalone house, that house burns down, nothing else happens. We have a duplex, okay, two burned down. When you have a five in a row townhouse, 10 is the spread.

25:13And if you have 20 in a row, wow, now you're talking about enormous losses. And so insurance companies are always trying to figure out how they can make their risks not coincide with each other. So if I insure 20 properties that are all in different neighborhoods around town, the odds that all 20 of those are going to burn down on the same day is zero. But if all 20 of them are connected in a row in a townhouse, the odds that all 20 of them are going to burn down on the same day goes from zero to not zero. And as a result, the price of insurance is going to go up quite a bit for those. So I wouldn't call them red flags, but townhouses, houses built prior to 1974 are going to be more expensive than those built after because building codes changed.

26:01Houses built before World War II are going to be another jump. houses that have anything really special or unique about them, like converted barns, converted churches, those sorts of things. The cheapest properties to insure are going to be the most boring properties. So a subdivision house in Phoenix is going to be rock bottom cheap to insure. There's no hailstorms there. There's no wildfires. There's millions of them that have been built. And those are, as a result, going to be perceived as very safe investments from an insurance company. One last question, Darren, on that same note, are there any other markets that come to mind for you where, from an insurance cost perspective, they're some of the best places to invest?