What Does It Cost to Insure a Texas Rental Property?

When investors hear about high insurance costs in Florida, they often ask me whether they should budget the same amount for a rental in Texas. Here’s what we’re seeing in the part of the Texas market where we invest.

For Texas rental homes five years old or newer that fit our investment model, the landlord insurance premiums we see average under $100 per month, including loss-of-rent coverage.

That’s the average we see on a specific group of homes. The quote for your property will depend on the address, the home, the insurer, and the coverage you choose. An older house, a property with different storm exposure, or a policy with different deductibles can come in at a very different price.

If you’re deciding whether a rental makes sense, get a quote for the actual address before you settle on a cash flow estimate. If you already own a rental, pull out your renewal and see what you’re paying for today.

What goes into a landlord insurance quote?

When I look at a property, I want to know what it costs to insure and what I’d have to pay out of pocket if something happened. Two houses at the same purchase price can have different insurance costs. Two policies at the same premium can leave you with very different repair bills.

Here are some of the details an agent may ask about:

• Location. The address helps the insurer evaluate exposure to risks such as wind, hail, and flooding.

• Age and condition. The age of the home and roof, the materials used, and updates to major systems can affect which policies are available and what they cost.

• Rebuilding cost. The amount it would cost to rebuild the house can differ from its purchase price. The purchase price also reflects the land and local market.

• How you use the property. Tell the agent whether it’s a long-term rental, a short-term rental, vacant between tenants, or undergoing renovations. If you own it through an LLC, tell the agent how it’s titled so they can confirm how the policy should be written.

• Limits and deductibles. The amount of coverage you buy and how much you agree to pay out of pocket can affect the premium.

The Texas Department of Insurance has a guide to shopping for property insurance that explains how to compare coverage, limits, and deductibles.

What should you look for in a landlord policy?

Ask for a policy that reflects how you actually use the home. Then ask the agent to walk you through the building coverage, liability, and loss of rent in plain language.

Dwelling coverage helps pay to repair or rebuild the home after a covered loss, subject to the policy terms and limits. Ask how the insurer calculated the dwelling limit and whether detached structures, such as a garage or fence, have separate limits.

Liability coverage can help if someone makes a covered claim that you’re responsible for an injury or property damage. Ask what limit is included, what exclusions apply, and what it would cost to increase the limit.

Loss-of-rent coverage, sometimes called fair rental value, can help replace rental income if covered damage makes the home uninhabitable. For example, if a covered fire makes the house unlivable during repairs, the policy may reimburse eligible lost rent, subject to its terms. Ask how the carrier determines the amount, what dollar or time limit applies, and what documentation you’ll need. Budget for routine vacancy and missed rent separately.

Tenant belongings are generally the tenant’s responsibility to insure through a renters policy. If you furnish the home or leave appliances you own on site, ask your agent how your own property is covered. The Texas Department of Insurance explains what renters insurance covers.

Take a closer look at the roof and deductible

The roof is one of the first things I’d ask about when comparing two quotes. Ask whether roof damage is covered at replacement cost or actual cash value, and whether different terms apply to wind or hail.

Replacement cost generally uses current repair or replacement costs, subject to policy terms, limits, and the deductible. Actual cash value accounts for depreciation, so the age and condition of the roof can reduce the payout. Ask whether there’s a roof payment schedule or a cosmetic damage exclusion, too. The Texas Department of Insurance has a side-by-side explanation of replacement cost and actual cash value.

Then convert any percentage deductible to dollars. If the wind and hail deductible is 2% of a $250,000 dwelling limit, that’s $5,000. Ask what amount the percentage is based on and when that deductible applies. A policy may have one deductible for wind and hail and another for other covered losses. Once you know the dollar amount, you can decide whether you’d be comfortable paying it from your reserves.

Check what the policy excludes

Ask about flooding, wind and hail, water backup, and vacancy for the specific address. These questions are especially useful if you’re comparing quotes from different carriers or buying a home that will sit empty while you make repairs.

Most residential property policies exclude flood damage, so ask about a separate flood quote if appropriate. Wind and hail coverage can also vary by policy and location. In some coastal areas, owners may need a separate windstorm policy. Ask the agent to show you where each coverage appears and include the price of any separate policies in your total insurance budget.

How to compare two quotes side by side

Give each agent the same property information and ask for comparable limits and deductibles. Request written quotes so you can see where the policies differ.

If one quote is cheaper, ask the agent to explain the difference. You may find that the savings are worth taking. You may also find that you’d be giving up roof coverage or taking on a deductible you’d rather avoid.

How I put insurance into the rental numbers

I use the total annual insurance cost divided by 12 as a monthly expense when evaluating the property. For example, a $1,140 annual premium works out to $95 per month. If a separate policy costs $360 a year, the total becomes $125 per month.

I look at the deductible separately when thinking about cash reserves. The premium is a recurring expense. The deductible is money I may have to come up with after a covered loss.

I also like to see what happens if the premium rises at renewal. If the total monthly cost goes from $95 to $125, projected cash flow drops by $30 per month, or $360 per year, with everything else held constant. That’s a simple way to see how much room the property has for a change in costs.

Where to start if you need a quote

If you’re buying, have the property address, year built, roof age if known, expected rental use, and proposed closing date ready. If you’re renewing, send your current declarations page and renewal quote so the agent can see your existing limits and deductibles.

Here are two contacts we share with investors as starting points.

For newer investment properties
Justin Young | Comparion Insurance Group
806-928-5963
[email protected]

For older investment properties
National Real Estate Insurance Group
888-741-8454
[email protected]

Before you make a decision, ask the agent to walk you through two scenarios: What would I pay if hail damaged the roof? What rent could I recover if a covered fire took the home out of service? Those answers will tell you more about how the policy fits your rental than the monthly premium alone.

If you’d like to talk through how insurance and other expenses fit into the numbers for a property you own or are considering, you can view consultation times with me.