Case Study: Loan 1371 – Alex: Why Insurance Premiums Are High for XXXX, Jacksonville, FL
Property Address: XXXX, Jacksonville, FL 32254
Loan Type: DSCR (Debt-Service Coverage Ratio)
Insurance Concern: Borrower questioned high insurance premium
Clarification: The lender does not control the insurance rate the property’s risk profile does
When insurance costs came in higher than expected for this Florida DSCR loan, the borrower questioned whether the lender had set unnecessary coverage requirements.
The truth? It’s not the lender. It’s the property.
Property Risk Profile (Source: First Street Foundation)
| Risk Factor | Rating (Out of 10) | Risk Level |
|---|---|---|
| Flood | 1/10 | Very Low |
| Fire | 3/10 | Low |
| Wind | 9/10 | Very High |
| Air | 5/10 | Moderate |
| Heat | 8/10 | High |
🔍 Detailed Explanation of Each Risk Factor
1. 🌪️ Wind Factor – 9/10
- Meaning: This property is at extreme risk from wind events such as hurricanes, tropical storms, and tornadoes common in Florida.
- Insurance Impact:
- Insurers often require separate hurricane/windstorm deductibles (e.g., 2%–5% of the dwelling value).
- Some may exclude wind coverage entirely unless separate wind insurance is purchased.
- Higher premiums due to potential for roof, siding, and structural damage.
- May require storm mitigation features like impact windows or hurricane straps to qualify or reduce rates.
2. 🔥 Heat Factor – 8/10
- Meaning: High exposure to extreme heat conditions, which are becoming more common in the Southeast U.S.
- Insurance Impact:
- Indirect damage such as foundation shifting (due to soil contraction/expansion), HVAC failure, and accelerated wear-and-tear.
- Insurers might increase premiums based on expected long-term property stress.
- Could require maintenance clauses or endorsements related to mechanical systems or roofing materials.
3. 🌫️ Air Factor – 5/10
- Meaning: A moderate rating for air quality risk possibly tied to regional pollution, industrial proximity, or wildfire smoke.
- Insurance Impact:
- Minimal effect on standard policies unless paired with wildfire risk.
- May affect policies related to indoor air quality, HVAC coverage, or liability in extreme cases.
4. 🔥 Fire Factor – 3/10
- Meaning: Relatively low risk of wildfires.
- Insurance Impact:
- Standard home insurance includes fire damage.
- Low risk = lower base premium for fire-related claims.
- Access to nearby fire stations, hydrants, and municipal water helps.
5. 🌊 Flood Factor – 1/10
- Meaning: Minimal flood risk.
- Insurance Impact:
- Standard homeowners policies do not include flood insurance.
- Flood insurance (typically through FEMA’s NFIP) might still be recommended but very affordable at this low risk.
- Not likely to significantly affect total premium unless lender mandates coverage.
Why This Matters for DSCR Loans
DSCR lenders require:
- Proof of hazard insurance that protects their collateral.
- Sufficient coverage based on replacement cost, not purchase price.
- Compliance with regional risk requirements (especially in coastal/high-risk zones).
✅ What They Don’t Do:
- Lenders don’t dictate how much the premium is.
- They don’t profit from higher insurance.
- They can’t override the insurer’s risk evaluation.
Why Insurance Costs Are Higher for This Property
| Risk Driver | Effect on Premiums |
|---|---|
| High Wind (9/10) | Major driver. Causes windstorm/hurricane surcharges, higher deductibles, and may require additional wind policy. |
| High Heat (8/10) | Contributes to long-term degradation, HVAC/foundation risk = slightly elevated premiums. |
| Low Flood/Fire | Helps keep base premium down, but not enough to offset the wind factor. |
| Moderate Air | Minimal impact, possibly noted in underwriting for liability or HVAC-related endorsements. |
Underwriting & Insurance Compliance
Lenders typically require:
- Hazard Insurance based on replacement value
- Named insured must match the LLC or borrower
- Deductibles must be within acceptable range
- Windstorm coverage must be included if in a wind-risk zone
In high-risk areas, lenders may also reject under-insured policies or delay closings until correct coverage is bound.
Takeaway for Borrowers
- Your insurance cost is driven by property risk, not lender greed.
- A 9/10 wind score in Florida will always increase your premium especially for DSCR loans where coverage must be robust.
- Plan for this early by requesting a hazard quote before signing a purchase agreement.
- Ask your broker for a wind mitigation inspection improvements can reduce premiums significantly.
For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.
Responses