Darren Nix, founder and CEO of Steadily, has reviewed thousands of landlord insurance claims. He identifies three costly mistakes that repeatedly drain landlord profits.
The first mistake: underinsuring rental properties. Many landlords base coverage on the mortgage amount rather than actual replacement cost. If a house burns down, the lender's interest gets protected first. Landlords absorb the gap. Nix sees claims denied because the coverage was simply too low to rebuild. Replacement cost in most markets now runs 20 to 40 percent higher than mortgage values, especially in areas with labor shortages and material inflation.
The second error involves dismissing liability coverage as optional. Slip-and-fall injuries, dog bites, or guest injuries create exposure that exceeds most landlords' net worth. Standard property policies cap liability at $100,000 to $300,000. A serious injury claim can exceed $500,000 within months. Umbrella policies cost $150 to $300 annually for $1 million in extra coverage. Landlords skip this and face catastrophic loss.
The third mistake: choosing coverage based on price alone. Cut-rate insurers often deny claims aggressively or exclude common rental scenarios. Nix stresses that a $40-per-month policy that denies the claim when you need it costs infinitely more than a $120-per-month policy that pays. He recommends landlords review policies annually, not once at closing. Property values change. Local hazards shift. Tax assessments reveal true replacement costs.
Landlords operating single units or small portfolios feel insurance pain hardest. A property manager or larger investor spreads risk across multiple assets and negotiates better rates. Solo landlords must be disciplined about reviewing their own coverage.
The takeaway for landlords: talk to insurance brokers who specialize in