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As if interest rates and house prices were not enough of a reason to think twice about investing in real estate, soaring insurance costs are slicing through cash flow like a machete hacking at weeds on a path to a foreclosure.
According to LendingTree data cited by Homes.com, Colorado’s homeowner’s insurance premiums jumped 18.32% in 2025, more than triple the national increase of 6%. However, that’s not the half of it. Colorado’s coverage has soared by about 100.8% since 2020, making investing there a perilous proposition.
Though extreme, Colorado’s increase could be a bellwether of what’s to come nationally, where insurance costs have also been on a tear in many parts of the country, with 71% of homeowners saying that their insurance costs have increased over the last few years.
Why Insurance Costs Are Rising So Fast
Colorado sits at the eye of the perfect insurance storm, where extreme weather, inflation, and high legal costs intersect. This, insurers say, is the reason claims and premiums are rising so fast, according to Homes.com.
However, other states aren’t far behind. Iowa has increased by 96% and Minnesota by 88.2%, while the rest of the nation has seen costs increase by 46.8% over the same period.
Mark Friedlander of the Insurance Information Institute told Homes.com in an email that Colorado “is among the least affordable states for home insurance coverage,” with premiums taking up 2.43% of household income, the 11th highest in the nation, according to the 2025 Insurance Research Council’s Affordability Index.
“A Dual-Catastrophe State”
“Unfortunately, [we’re a] dual-catastrophe state,” Carole Walker, executive director of the Rocky Mountain Insurance Association, said on Homes.com. “When you see the hail risk and the wildfire risk, that really puts Colorado as a target. At the same time, it’s been a very unprofitable state.”
Insurers expect Colorado to hold its own financially, which is why its costs are so high. “Insurance carriers expect every state to be profitable and price accordingly, more so today than in years past,” John Klaassen, president of Lightship Insurance in Denver, told Homes.com in an email. “They won’t let other states subsidize Colorado.”
In California, the insurance of last resort, the FAIR Plan—backed by six standard insurance companies for wildfire damage only—is raising rates by 29.1% for some homeowners, starting Oct. 15.
Foreclosures Follow Insurance Increases
For landlords, the ever-escalating cost of insurance can be the difference between positive and negative cash flow. According to LendingTree, Colorado’s insurance price is almost double the national average, and Colorado’s foreclosure spike—up 51% year over year—is a result of the state’s overall housing costs.
Program director Patrick Noonan at Colorado Housing Connects, a statewide housing hotline, told Homes.com:
“Oftentimes we’re helping people work with their servicers on some of the different resolutions that might be available. That could be a loan modification. It could be a partial claim. It could be forbearance. [It’s] really just trying to figure out what options are available through the mortgage servicer.”
The National Picture
National numbers reflect what Colorado shows on a larger scale. The Wall Street Journal reports data from ATTOM that shows U.S. foreclosure filings climbed to nearly 119,000 properties in the first quarter of 2026, a 26% increase from a year earlier, with property taxes and insurance cited as contributing factors to higher housing costs.
“They’re having payment shocks from taxes and insurance…along with potential job distress,” Marina Walsh, an economist at the Mortgage Bankers Association, told the Journal of the effect of rising costs on property owners. “[For homeowners who have bought recently], it’s this layering effect that could create distress.”
Another analysis by the Levy Economics Institute at Bard College corroborated these findings, stating that homeowners in the United States are “overburdened and struggling to keep up with the cost of coverage.”
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Tenants Are Already Cost-Burdened Before Rental Hikes
For small landlords, the issue is only exacerbated if the expense is passed down to tenants who are already cost-burdened and more likely to default on their rent. According to Harvard University’s Joint Center for Housing Studies:
“12.1 million renters (26%) spend more than half of their income on rent and utilities, making them severely burdened. From 2001 to 2024, renter incomes rose by 9% in real terms while rents rose by 30%. As a result, the residual income that households have left over after paying rent has declined, especially for lower-income renters.”
Many landlords who ran a cash flow analysis before buying their investments have seen those initial numbers blown out of the water as insurance costs have soared while rents have remained flat.
Now, “all of a sudden, a year later or three years later, that mortgage payment jumps beyond that percentage that they had accounted for when you add in insurance and taxes,” Rebecca Carter, a LegalShield provider attorney who works with clients in the mid-Atlantic and Northeast, told the Journal.
Policy Solutions Aim to Curb Costs
Escalating insurance costs feed into the national narrative of a housing affordability crisis, and, as such, many states are attempting to address it. In Colorado, lawmakers have created grant programs to help fund hail-resistant roofs and are rolling out a statewide wildfire code to reduce future losses.
In New York, Mayor Mamdani has acknowledged that insurance costs are crippling landlords’ NOI and has promised to help by providing cheaper property and liability insurance to owners of affordable housing and rent-stabilized buildings.
“Addressing the housing crisis requires comprehensive solutions,” The New York Times reported Mamdani as saying as he introduced the program at a luncheon held by the Citizens Housing & Planning Council, a nonprofit group. “As we offer alternatives to the prohibitive cost of insurance, we are delivering exactly that.”
Final Thoughts
BiggerPockets has covered practical ways to reduce insurance costs in detail in recent months, so I won’t go over those here. Instead, I have to mention the importance of maintaining an umbrella policy. 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.
