Insurance Crisis 2026: What Real Estate Investors Need to Know

The elephant in the room that’s crushing cash flows—and what you can actually do about it.

We need to talk about insurance.

Not because it’s exciting—it might be the least exciting topic in real estate investing. But because it’s become one of the most significant threats to investment property economics, and too many investors are still treating it as an afterthought.

Premiums are up 20-40% in many markets. In some areas—Florida, Louisiana, parts of California—they’ve doubled or tripled. Properties that used to cash flow comfortably are now marginal because insurance alone eats hundreds of dollars per month that used to be profit.

This guide will help you understand what’s driving the insurance crisis, how it affects your DSCR calculations, and—most importantly—what you can actually do about it.

What’s Driving the Insurance Crisis

Insurance premiums don’t rise arbitrarily. Several factors have converged to create the current environment:

Climate-Related Claims Are Exploding

Hurricanes, wildfires, floods, hail storms—natural disasters are becoming more frequent and more severe. Insurers have paid out record claims in recent years, and they’re adjusting premiums to reflect the new reality.

This isn’t just coastal markets. Colorado has seen massive hail-related premium increases. Pacific Northwest properties face wildfire risk. Midwest markets deal with tornado and severe storm exposure. Climate risk is everywhere.

Reinsurance Costs Have Spiked

Insurance companies buy their own insurance (reinsurance) to protect against catastrophic losses. Reinsurance costs have increased dramatically, and those costs get passed through to policyholders.

Inflation Affects Replacement Costs

When lumber costs doubled, so did the cost to rebuild a damaged property. Insurance is priced based on replacement cost, not market value. Even if your property hasn’t appreciated, your coverage amount—and premium—has likely increased.

Insurers Are Exiting Markets

In the hardest-hit states (Florida especially), major insurers have reduced exposure or exited entirely. Less competition means higher prices for remaining options. Some properties can only be insured through state-run “insurers of last resort” with premium pricing.

How Insurance Affects Your DSCR

Here’s where insurance becomes a financing issue, not just an expense issue. When lenders calculate DSCR, insurance is part of the denominator—the “I” in PITIA (Principal, Interest, Taxes, Insurance, Association dues).

The Math

DSCR = Gross Rents ÷ Total Debt Service (PITIA)

As insurance increases, your DSCR decreases—even if rent stays the same and your rate doesn’t change.

Example: Insurance Impact on DSCR

• Property: $300,000 purchase, $225,000 loan at 7.5%, 30-year term
• Rent: $2,200/month
• Taxes: $300/month
• Principal & Interest: $1,573/month

Scenario A: “Normal” Insurance ($150/month)

PITIA: $1,573 + $300 + $150 = $2,023

DSCR: $2,200 ÷ $2,023 = 1.09x ✓

Scenario B: Elevated Insurance ($350/month)

PITIA: $1,573 + $300 + $350 = $2,223

DSCR: $2,200 ÷ $2,223 = 0.99x ✗

Same property. Same rent. Same rate. But $200/month in additional insurance premium dropped the DSCR below 1.0—potentially disqualifying the deal for standard DSCR programs or requiring 12 months reserves instead of 3-6 months.

Use our DSCR Calculator to model how different insurance scenarios affect your specific deal.

AHL Insurance Requirements

At American Heritage Lending, we require specific minimum coverage for all DSCR loans:

• Dwelling coverage: At least equal to the loan amount
• Rent loss coverage: Equal to 6 months of qualifying rent
• Liability coverage: Minimum $100,000

These aren’t arbitrary requirements—they protect both you and your investment. Make sure any quote you get meets these minimums, or it won’t work for loan approval.

Markets Most Affected

Insurance challenges aren’t uniform. Some markets are dramatically impacted; others remain relatively affordable.

High-Impact Markets

Florida (Statewide)

Ground zero for the insurance crisis. Premiums have increased 40-100%+ in recent years. Major carriers have exited. Citizens (state insurer of last resort) is overwhelmed. Some properties are nearly uninsurable through traditional markets. Average premiums run 2-3x the national average.

Louisiana

Similar story to Florida. Hurricane exposure, carrier exits, and limited competition have created a difficult market. New Orleans and coastal areas are especially challenging.

California (Wildfire Zones)

Properties in designated wildfire risk areas face severe premium increases or non-renewal. State FAIR plan provides coverage of last resort but at premium pricing. Even non-wildfire areas see elevated rates as insurers spread risk.

Coastal Texas

Houston, Galveston, and Gulf Coast areas face elevated premiums due to hurricane and flood exposure. Inland Texas is more reasonable.

Moderate-Impact Markets

Colorado

Hail and wildfire risk have driven premium increases, but the market remains functional. Front Range properties see elevated rates.

Arizona

Generally affordable, but some Maricopa County areas face elevated rates. Overall still a favorable insurance environment.

Coastal Carolinas/Georgia

Hurricane exposure creates some challenges, but markets remain more functional than Florida. Island and waterfront properties face the steepest premiums.

Lower-Impact Markets

Midwest (OH, IN, MI, MO, KS)

Despite tornado and hail exposure, insurance remains relatively affordable. These markets offer some of the best insurance economics for investors.

Tennessee

Generally favorable insurance environment with competitive carrier options.

Pennsylvania, Virginia, Maryland

Mid-Atlantic markets have moderate premiums without the extreme challenges of coastal or wildfire-prone areas.

Strategies for Managing Insurance Costs

You can’t control market conditions, but you can take steps to optimize your insurance situation:

1. Shop Aggressively

Get quotes from multiple carriers and independent agents. Pricing varies dramatically—we’ve seen 50%+ differences between quotes for the same property. Don’t assume your current carrier is competitive.

2. Increase Deductibles

Higher deductibles mean lower premiums. If you can absorb a $2,500 or $5,000 deductible instead of $1,000, you may see meaningful premium reduction. Just make sure you have reserves to cover the deductible if needed.

3. Evaluate Named Storm Deductibles

In coastal markets, named storm (hurricane) deductibles are often 2-5% of dwelling coverage—separate from your standard deductible. Higher named storm deductibles can reduce premiums.

4. Consider Actual Cash Value Policies

Replacement cost policies pay to rebuild at current costs. Actual cash value (ACV) policies pay depreciated value. ACV is cheaper but provides less coverage. It may be appropriate for older properties where you’d likely sell land rather than rebuild.

5. Invest in Risk Mitigation

Some improvements reduce premiums:

• Roof replacement (especially to impact-resistant materials)
• Storm shutters or impact windows
• Updated electrical, plumbing, and HVAC
• Security systems and smart home features

Ask your insurer which upgrades qualify for discounts and whether the premium savings justify the cost.

6. Bundle with Other Properties

If you have multiple properties with the same carrier, you may qualify for portfolio discounts. Some landlord-focused carriers offer better rates for investors with multiple units.

7. Work with Landlord-Specialist Agents

Agents who specialize in investment property insurance often have access to carriers and programs that generalist agents don’t. They also understand landlord-specific coverage needs like rent loss and liability.

When to Factor Insurance into Market Selection

For markets with severe insurance challenges, premiums should be a primary factor in your investment decision—not an afterthought.

Florida Reality Check

A Florida property that appears to cash flow at 1.25x DSCR using “average” insurance assumptions might actually be at 0.95x with realistic Florida premiums. Run the numbers with actual quotes before making offers.

That doesn’t mean you can’t invest in Florida—but you need to account for insurance in your purchase price. Properties that work for investors in Ohio might not work in Tampa at the same cap rate. Adjust your expectations or focus on markets with better insurance economics. Our top markets for DSCR investors factors in insurance considerations.

Vacant Property Insurance

Vacant properties present additional insurance challenges. Most standard landlord policies don’t cover vacant properties—or have significant coverage gaps after 30-60 days of vacancy.

At AHL, we allow vacant property purchases (using Form 1007 market rent for DSCR calculation), but you’ll need appropriate vacant property insurance. This typically costs 50-100% more than occupied property coverage. Factor this into your analysis for properties you’ll be holding vacant during lease-up. See our no-ratio DSCR loan guide for vacant property financing details.

Short-Term Rental Insurance

Operating a property as an Airbnb or VRBO creates additional insurance complexity. Standard landlord policies typically exclude short-term rental activity. You’ll need either a specialized STR policy or a commercial policy that covers hospitality use. These often cost 30-50% more than standard landlord coverage. Our DSCR loans for Airbnb properties article covers STR-specific considerations.

Building Insurance into Your Deal Analysis

Here’s our recommended approach for incorporating insurance into your investment analysis using the DSCR Calculator:

Before You Make an Offer

Get an actual insurance quote—not an estimate. This requires property details (address, square footage, year built, construction type, roof age) but doesn’t require you to bind coverage. Most agents will provide quotes on properties you’re considering.

Stress Test Your DSCR

Run your deal analysis with:

• Current quoted premium
• Premium + 10% (annual increase assumption)
• Premium + 25% (worst-case scenario)

Does the deal still work with elevated insurance? If 10% annual increases break your DSCR, you’re vulnerable.

Compare to Market Averages

Know what typical premiums look like in your target market. If a property quotes significantly higher than average, find out why—it may indicate risk factors (roof age, claims history, location) that affect more than just insurance.

The Bottom Line

Insurance used to be a line item investors barely thought about. Those days are over.

In 2026, insurance costs can make or break your deal economics. They affect DSCR calculations, cash flow projections, and ultimately whether a property makes sense to own.

Smart investors are:

• Getting actual quotes before making offers
• Modeling realistic insurance into deal analysis
• Considering insurance environment in market selection
• Working with specialist agents who understand landlord coverage
• Budgeting for continued premium increases

The investors who ignore insurance reality are the ones who’ll be surprised when their “cash-flowing” property suddenly isn’t—because the premium renewal came in 40% higher.

Don’t be that investor.

Questions about how insurance affects your specific scenario? Contact our team at (800) 745-9280. We can help you model deals with realistic insurance assumptions and find financing that works. Get prequalified today.