In the realm of real estate investment, rising interest rates and escalating home prices have long been significant concerns. However, a new challenge is emerging, threatening to slice through cash flow projections like a sharp blade: soaring insurance costs. This issue is particularly acute in Colorado, where homeowner’s insurance premiums jumped 18.32% in 2026, more than triple the national average of 6%.
But Colorado is not alone. States like Iowa and Minnesota have seen increases of 96% and 88.2% respectively, while the rest of the nation has experienced a 46.8% rise in costs since 2026. These escalating costs are not just a regional issue; they are a national trend that is reshaping the real estate landscape.
Colorado: The Epicenter of the Insurance Storm
Colorado finds itself at the intersection of extreme weather, inflation, and high legal costs, creating a perfect storm for insurance providers. Insurers point to these factors as the primary reasons for the rapid increase in claims and premiums. Mark Friedlander of the Insurance Information Institute highlights that Colorado is among the least affordable states for home insurance coverage, with premiums taking up 2.43% of household income.
The state’s unique challenges are exacerbated by its status as a dual-catastrophe state according to Carole Walker, executive director of the Rocky Mountain Insurance Association. The combination of hail and wildfire risks makes Colorado a high-target area for insurers. John Klaassen, president of Lightship Insurance in Denver, notes that insurers expect every state to be profitable and price accordingly, which is why Colorado’s costs are so high.
The National Picture: A Growing Crisis
The national numbers reflect what Colorado is experiencing on a larger scale. Foreclosure filings climbed to nearly 119,000 properties in the first quarter of 2026, a 26% increase from the previous year. Property taxes and insurance are cited as contributing factors to higher housing costs, creating a layering effect that could lead to distress for homeowners.
For small landlords, the issue is compounded by tenants who are already cost-burdened. According to Harvard University’s Joint Center for Housing Studies, 12.1 million renters spend more than half of their income on rent and utilities. This severe burden makes it difficult for tenants to absorb additional rental hikes, exacerbating the financial strain on landlords.
Policy Solutions and Mitigation Strategies
In response to the escalating insurance costs, many states are attempting to address the issue through policy solutions. In Colorado, lawmakers have created grant programs to fund hail-resistant roofs and are rolling out a statewide wildfire code to reduce future losses. These initiatives aim to mitigate the financial impact on homeowners and insurers alike.
In New York, Mayor Mamdani has acknowledged the crippling effect of insurance costs on landlords’ net operating income (NOI). The city has promised to help by providing cheaper property and liability insurance to owners of affordable housing and rent-stabilized buildings. These efforts are part of a broader strategy to address the housing affordability crisis and support both landlords and tenants.
The importance of maintaining an umbrella policy cannot be overstated. Amid the stress of shopping around for the lowest-cost insurance policy, one of the first things landlords dispense with is “extras” like an umbrella policy. This could be a very costly mistake. The reason investing in residential real estate is so problematic is that you are not only investing in land, bricks, and mortar but also human beings, and, out of those three things, unfortunately, humans are the most unreliable.
An umbrella policy provides you with extra insurance beyond what your standard homeowners policy covers. It is extremely affordable—around $200 for $1 million of coverage. As a landlord who has dealt with gang activity, police raids, and multiple fires, I can attest to the importance of being well-insured. Even if your insurance bills have increased, hold on to your umbrella policy. Landlording is risky, highly litigious, and very stressful. Don’t add to your stress by being underinsured. If you can’t afford the insurance, don’t buy the home.
