You found a rental property with solid numbers, but you plugged in $100/month for insurance because that seemed reasonable. Now you're wondering if that estimate is anywhere close to reality.
Insurance is one of those line items that can swing your cash flow by $100-200/month depending on the property. Getting it wrong during analysis means your projected returns are fiction.
Landlord Insurance Is Not Homeowner's Insurance
Landlord insurance (sometimes called rental dwelling insurance or DP-3 policies) costs more than standard homeowner's insurance because you're not living in the property. Insurance companies view tenant-occupied properties as higher risk.
According to industry data, landlord policies typically run 20-30% more than comparable homeowner's policies. A property that would cost $1,200/year to insure as your primary residence might cost $1,500-1,600/year as a rental.
The core coverage includes:
What landlord insurance does NOT cover:
How Much Should You Actually Budget?
I've seen insurance costs range from $600/year for a small single-family in a low-risk area to $4,000+ for a coastal property or older multifamily. Here's a rough framework:
| Property Type | Annual Premium Range | Monthly Budget |
|---|---|---|
| Single-family (inland) | $800 - $1,800 | $67 - $150 |
| Duplex | $1,200 - $2,400 | $100 - $200 |
| Triplex/Fourplex | $1,800 - $3,600 | $150 - $300 |
| Coastal/High-risk | $2,500 - $5,000+ | $208 - $417+ |
These are ballpark figures. Your actual premium depends on specific factors I'll cover below.
For a quick estimate during initial analysis, I use 0.5% to 1% of the property value annually. A $200,000 property would budget $1,000-2,000/year for insurance. This isn't precise, but it keeps you in the right range before you get real quotes.
Factors That Drive Your Premium Up or Down
Property Age and Condition
Older properties cost more to insure. A house built in 1920 with original electrical and plumbing will have higher premiums than a 2010 build. Some insurers won't even cover properties with knob-and-tube wiring or polybutylene pipes without updates.
Roof age matters significantly. Many insurers add surcharges or reduce coverage for roofs over 15-20 years old. Some won't cover roofs older than 25 years at all.
Location Factors
Coverage Amounts and Deductibles
Higher deductibles lower your premium. Moving from a $1,000 deductible to $2,500 might save you 10-15% annually. For a rental property where you're not emotionally attached to filing claims for minor damage, a higher deductible often makes sense.
Your dwelling coverage should match the cost to rebuild the structure, not the purchase price or market value. A $250,000 property on a $100,000 lot might only need $175,000 in dwelling coverage.
Additional Coverage Worth Considering
Umbrella Insurance
An umbrella policy provides liability coverage beyond your landlord policy limits. Standard landlord insurance might include $300,000-500,000 in liability coverage. An umbrella policy adds $1-2 million more.
Umbrella policies are surprisingly affordable. You can often get $1 million in additional coverage for $200-400/year. I carry umbrella coverage on all my rentals because one serious lawsuit could wipe out years of cash flow.
Flood Insurance
Standard landlord policies exclude flood damage. If your property is in a flood zone (check FEMA maps), you'll need a separate flood policy through the National Flood Insurance Program or a private insurer.
Flood insurance costs vary dramatically. Properties in low-risk zones might pay $400-600/year. High-risk flood zones can run $2,000-5,000+ annually. This single expense can make or break a deal's numbers.
Loss of Rent Coverage
Most landlord policies include some loss of rent coverage, but check the limits. If your property rents for $2,000/month and the policy only covers 6 months of lost rent, that's $12,000 maximum. A major fire could leave you without rental income for 12+ months during reconstruction.
How to Get Accurate Quotes for Your Analysis
During initial deal analysis, use estimates. But before making an offer or signing a contract, get actual quotes.
The process:
When comparing quotes, look beyond the premium. Check the deductible, liability limits, loss of rent coverage, and any exclusions specific to the policy.
Worked Example: Analyzing a Triplex
Let's walk through insurance budgeting for a specific deal.
Property Details:
Initial Estimate:
Using the 0.75% of value rule (splitting the difference of my 0.5-1% range for a typical property):
> $385,000 × 0.0075 = $2,887/year or $241/month
Actual Quotes Received:
| Carrier | Annual Premium | Deductible | Liability |
|---|---|---|---|
| Company A | $2,640 | $1,000 | $500,000 |
| Company B | $2,280 | $2,500 | $300,000 |
| Company C | $3,120 | $1,000 | $500,000 |
Company B has the lowest premium, but the higher deductible and lower liability limits. Company A offers a good balance.
I'd go with Company A at $2,640/year ($220/month) and add a $1 million umbrella policy at $350/year ($29/month).
Total Insurance Budget: $249/month
That's close to my initial estimate, which means the deal numbers I ran were reasonably accurate. If the quotes had come back at $400/month, I'd need to revisit my analysis because that $150/month difference equals $1,800/year in reduced cash flow.
Common Mistakes in Insurance Budgeting
Mistake 1: Using Your Primary Home's Insurance Cost
Your primary residence insurance isn't a good proxy for rental property insurance. Landlord policies cost more, and the coverage structure differs. I've seen investors budget $80/month because "that's what I pay on my house" and end up with $180/month in actual costs.
Mistake 2: Ignoring Flood Zone Status
FEMA flood maps are updated periodically. A property that wasn't in a flood zone 10 years ago might be in one now. Always verify current flood zone status. A property requiring $3,000/year in flood insurance on top of standard coverage fundamentally changes the math.
You can check flood zones at [FEMA's Flood Map Service Center](https://msc.fema.gov/portal/home). It's free and takes 2 minutes.
Mistake 3: Not Factoring Insurance Into Value-Add Renovations
Updating electrical systems, replacing the roof, or installing a new HVAC system often reduces insurance costs. When analyzing a BRRRR deal or value-add project, factor potential insurance savings into your post-renovation expense projections.
Conversely, adding a pool or trampoline to attract tenants will increase your liability premiums. Make sure the additional rent justifies the added insurance cost.
Getting Insurance Right in Your Analysis
Insurance isn't the most exciting part of deal analysis, but getting it wrong by $100/month means your cash-on-cash return projections are off by 1-2 percentage points on a typical deal.
For initial screening, use 0.5-1% of property value as your insurance estimate. For properties in flood zones, coastal areas, or with older systems, lean toward the higher end or add a buffer.
Before making an offer, get real quotes. The 20 minutes it takes to call a few insurance agents could save you from buying a deal that doesn't actually cash flow.
Nationwide has a solid [overview of landlord insurance coverage](https://www.nationwide.com/lc/resources/home/articles/what-does-landlord-insurance-cover) if you want to understand the different policy components in more detail.
When you're ready to run the full numbers on a property, the [Single Family Calculator](/tools/single-family) includes insurance as a dedicated expense line item, making it easy to see how different insurance costs affect your returns. Plug in your actual quotes once you have them to get accurate projections.