Insurance Costs in 2025
Managing Insurance Costs While Maintaining Strong Coverage
by Jason Jones
As the insurance landscape continues to evolve, real estate investors face a dynamic environment marked by shifting underwriting guidelines and the ongoing impact of catastrophic events.
To navigate these changes effectively, investors must understand the factors that drive insurance rates and take proactive steps to manage costs. Anticipating future trends and adjusting strategies accordingly can help investors maintain strong coverage while keeping insurance expenses manageable.
Insurance Costs Fluctuate
Insurance premiums follow market cycles — rising, stabilizing, and adjusting again based on external pressures. While 2024 showed early signs of rate stabilization, recent catastrophic events, including major flood events in the Southeast and devastating California wildfires, may prompt another industry-wide reset. Unpredictable weather patterns continue to challenge insurers, increasing concerns about escalating risk. These factors are expected to drive further rate adjustments, stricter underwriting guidelines, and revised coverage options in the coming year.
Key Factors That Determine Insurance Premiums
Several factors influence how much you pay for coverage, including:
Property Value // Higher-value properties cost more to rebuild, leading to higher premiums.
Location // Areas prone to hurricanes, wildfires, or floods generally have higher premiums. Cities with high crime rates may also face increased costs due to theft and vandalism risks.
Weather Severity & Frequency // Insurers adjust premiums based on the frequency and severity of catastrophic losses. As claims payouts increase, rates follow.
Economic Conditions // Rising construction costs, inflation, and supply chain disruptions all impact replacement costs, driving insurance premiums higher.
Adjusting Risk Appetite to Lower Premiums
One of the most effective ways to manage insurance costs is by considering the amount of risk you are willing to take on yourself.
Higher Deductibles
Increasing your deductible can significantly reduce your premiums. While higher deductibles mean paying more out of pocket for claims before your insurer steps in, they also lower your monthly cost. If raising the overall deductible feels too risky, consider increasing deductibles for specific perils, such as wind/hail or water damage. Choose a deductible amount that aligns with your financial ability to cover unexpected losses.
Choose the Right Policy Form
Your policy type determines the scope of coverage and the associated costs:
Special Form // The most comprehensive option, covering all perils except those explicitly excluded in the policy.
Basic Form // Covers only named perils and excludes costly risks like water damage, theft, and damage from the weight of ice, sleet, or snow. It is typically 20-25% cheaper but may leave critical gaps in coverage.
If you are comfortable self-insuring excluded risks, a Basic Form policy could be a cost-effective option.
Consider Your Settlement Method
Your coverage valuation method impacts premiums and potential claim payouts.
Replacement Cost (RC) // Covers rebuild/repair costs and allows for recoverable depreciation. Requires a higher valuation per square foot.
Actual Cash Value (ACV) // Pays the depreciated value of damaged property with no opportunity to recover deducted depreciation. Premiums are typically 15-20% lower with ACV.
Opting for ACV can be more cost effective if you are comfortable with the potential financial trade-offs.
Preventing Claims for Long-Term Savings
Reducing claim frequency is one of the most effective ways to manage insurance costs. Frequent, avoidable claims can not only raise premiums but also impact future insurability.
The Impact of Controllable Losses
Insurance carriers closely track claims history, and multiple small, preventable losses can lead to premium hikes or even non-renewals. Common controllable losses include water damage from burst pipes, theft and vandalism, and tree-related property damage. Implementing strong risk management practices can help prevent losses and demonstrate to insurers that you take proactive steps to reduce exposure to risks, making your portfolio more attractive.
Risk Management Strategies
Install Safety Features // Some carriers offer credits on their rates for properties with hardwired smoke detectors, monitored security systems, and sprinkler systems.
Upgrade Old Systems // Modernizing electrical, plumbing, and HVAC systems reduces the risk of costly claims related to fire, water damage, or equipment failures.
Regular Property Inspections // Routine property checkups can help identify and address maintenance issues before they escalate into expensive claims.
Limit Unnecessary Claims // Filing multiple claims for minor damages can lead to higher premiums over time. If a loss does not exceed your deductible, covering the repairs yourself may be a smarter long-term strategy.
Finding the Best Coverage at the Best Price
In the face of fluctuating premiums and changing market conditions, it is essential to focus not only on securing the most affordable insurance but also on finding the best value for your money.
Know What You are Paying For
A lower premium does not mean better value. Inexpensive policies often have significant coverage gaps that leave you exposed to costly risks. Always review covered perils and exclusions, deductible amounts, and the insurer’s reputation for handling claims.
Work With an Independent Agency
Unlike captive agents who represent a single insurance company, independent agencies work with multiple carriers. This flexibility allows them to shop the market and find policies that best align with your portfolio’s needs, risk tolerance, and budget. Additionally, agencies that specialize in real estate portfolios understand the unique challenges investors face–whether it is insuring multiple properties, dealing with tenant-related risk, or managing vacant homes–and can provide tailored solutions that other insurance providers might overlook or not have access to.
Smart Strategies for 2025 and Beyond
With the right approach, you can effectively manage insurance costs while maintaining strong coverage for your investment properties. In an uncertain market, staying ahead of trends, tailoring your coverage to match your risk tolerance, and minimizing preventable losses are more important than ever to protect both your assets and your bottom line.
