Experienced rental property investors know that landlord insurance not only helps you sleep at night, but is nearly always required by your lender. Historically, insurance premiums were a stable and predictable operating expense…but times have changed. Today’s wildly fluctuating premiums are often landing on ridiculous numbers that can significantly cut into cash flow. The encouraging news is that there are some creative strategies that can help lower insurance costs without sacrificing the coverage you need. Here’s a direct, actionable guide on how you can endeavor to keep your insurance expenses in check while the fires rage and hurricanes swirl.
1. Shop Around and Compare Policies
One of the simplest but most effective ways to reduce insurance costs is to get multiple quotes from different providers. Not all insurance companies assess risk the same way, so premiums can vary widely for the same coverage. Use multiple independent insurance brokers, each of whom works with multiple carriers to cast a wider net and ultimately find the best rate with a reputable carrier.
- Pro Tip: Ask for a detailed breakdown of each policy’s coverages to ensure you’re comparing apples to apples.
2. Increase Your Deductible
Raising your deductible—the amount you pay out-of-pocket before insurance kicks in—can lead to significantly lower premiums. A standard deductible might be $1,000, but increasing it to $2,500 or even $5,000 can yield meaningful savings. This tactic is probably better suited to more experienced investors with larger portfolios and/or significant cash reserves. Ultimately, it’s up to you to decide what level of deductible risk you’re willing to assume.
- Risk Management Strategy: Keep an emergency fund to cover higher deductibles in case of a claim.
3. Bundle Policies for Multi-Property Discounts
Many insurers offer discounts when you bundle multiple properties under one policy or combine rental property coverage with other types of insurance (such as personal lines, homeowners policies, or umbrella liability). If you own multiple rental properties, consolidating your landlord and dwelling coverages with one provider can lead to bulk discounts of 10-20% or more.
4. Improve Property Safety and Risk Management
Insurance companies charge higher premiums when they perceive your property as a higher risk. Taking proactive safety measures and making your carrier aware of your efforts can lower insurance costs in some situations:
- Install security systems and deadbolt locks to reduce vandalism and theft risks.
- Upgrade electrical and plumbing systems to help prevent fires and water damage.
- Ensure proper tenant screening to reduce liability risks.
- Provide regular maintenance to prevent major claims from neglect-related damage.
- Clear vegetation, overhanging trees, etc. from a defensible area around the dwelling to reduce risk of losses from wildfire.
5. Make Sure You Have a Landlord Policy Instead of a Homeowners Policy
Some new investors mistakenly use a traditional homeowners policy instead of a landlord insurance policy, which can be both costly and may not cover tenant-related damages. Landlord policies are structured specifically for rental properties and often come with better pricing and more appropriate liability protections.
6. Review Your Coverage Annually
Insurance rates and property values change and renewals often come with significant premium increases. It’s essential to review your policies at least annually, if not more often, to ensure you’re not over-insured, paying for coverage you don’t need, or sticking with an existing carrier when other more economical alternatives exist.
- Key Considerations:
- Has your property value changed?
- Have local risks (crime, natural disasters) shifted?
- Are there new insurance providers in your market offering better rates?
7. Eliminate Unnecessary Coverage
Some insurance policies include add-ons that may not be relevant for all properties. Evaluate your policy to see if you’re paying for:
- Flood insurance (if not in a flood zone)
- High-end personal property coverage (not needed if you don’t furnish the unit)
- Earthquake insurance (if risk is low in your region)
Adjusting or removing unnecessary riders can sometimes reduce insurance premiums without significantly increasing exposure to financial risk.
8. Maintain a Strong Claims History
Insurance companies sometimes reward low-risk clients with lower premiums. If you file frequent claims, expect your rates to rise. Instead of filing small claims:
- Handle minor repairs out-of-pocket when possible.
- Prevent issues proactively with regular property maintenance.
- Encourage or require tenants to carry renters’ insurance to cover their belongings and liabilities.
9. Negotiate With Your Insurer
Many landlords don’t realize that insurance premiums are often negotiable. If you’ve had no claims in recent years, ask your insurer for a loyalty discount or a rate adjustment. Provide evidence of any risk-reducing improvements you’ve made to support your request.
- Leverage Competition: If another provider offers a better rate, use it as leverage to negotiate a lower price with your current insurer.
10. Use an LLC or Commercial Policy for Multiple Properties
For investors with several rental properties, using an LLC and obtaining a commercial insurance policy may be more cost-effective and offer better liability protection than individual policies for each property. Some insurers offer specialized portfolio coverage that can lower costs significantly.
Final Thoughts: Smart Insurance Strategies Protect Your Profits
Insurance is often a necessary expense, but it doesn’t always have to be a financial drain. By implementing smart risk management, optimizing your policy structure, and regularly reviewing your coverage, you can keep costs under control while ensuring your investments are still protected.
Taking the time to strategically manage your insurance expenses can improve your bottom line and enhance your long-term profitability as a rental property investor.