Please note, we are licensed in VA, MD, NC, SC, TN and GA. If you are flipping a house outside of these states, we recommend calling an independent insurance carrier in your area. It's still a great idea to continue reading through this blog post so you can get a better understanding of what to expect before you make that call.
Investing in real estate is one of those ventures that can lead to long-term financial stability if you do it right. It's no wonder why so many people turn to investing in "fixer upper" houses to sell as their main source of income. We have many clients who flip houses for a living. One of our clients recently flipped over 20 houses in 2 years!
If you're just starting out in the flipping business, you should know that your normal homeowners insurance won't cut it when it comes to insuring that new investment property. Many people assume that they can just add the new property to their existing homeowners insurance policy, but by doing that you are making a potentially devastating mistake. You'll want to look into your options for insuring a property that's vacant and undergoing a renovation, big or small. By ensuring your assets are protected, you'll prevent yourself from experiencing a devastating loss if there's any kind of accident including vandalism, fire, extreme weather, theft, or other threats.
But here's the thing: It's not as easy as just checking the "I'm flipping a house" box to get your policy. There are many different options out there that serve specific purposes. At the end of the day you'll want to consult with your insurance agent, but in this article we list the main types of house flipping insurance you'll be choosing from. While it might seem overwhelming at first, the beauty of these choices is that you can pick and choose what you need so you're not paying for insurance that doesn't apply to you. We can even insure you for short periods of time, with policies as short as 3 or 6 months.
Builder’s Risk Policy
The most common type of insurance used for house flipping is called a "builder's risk" insurance policy. This type of insurance covers the property and building materials during the construction phase. It also covers any installation equipment that is stored on-site during construction. It tends to be the most affordable option when you're starting out with a home that has a lower value, which what most flippers tend to invest in. Builder's risk insurance is necessary if anything structural is being done, such as having walls removed, replacing a roof, or additions. Otherwise, if it's just cosmetic such as new paint and appliances, you'd most likely only need a regular vacant policy.
What does a builder's risk policy cover?
This type of policy usually covers the material aspects of a flip or renovation project. That may include construction materials, fixtures, equipment, and the actual building or structure itself.
What isn't included in a builder's risk policy?
Builder's risk insurance doesn't cover liability issues, such as workplace accidents and injuries, worker's comp, and medical costs associated with injuries that happen on the job site. You'll want to also have a stand-alone liability policy to cover liability risks.
Examples of builder's risk insurance in action:
Scenario 1: A fire breaks out where the siding for a house was being stored before installation. Builder's risk would kick in to replace the siding any any other materials and equipment that were destroyed.
Scenario 2: Vandals break into the construction site and steal equipment and materials, including recently installed copper pipes. The builder's risk insurance would pay for replacement of materials and equipment that were stolen.
Scenario 3: While renovating units in an apartment building, the pipes from the apartment above burst and destroyed materials that were being installed in the unit below. If the builder's risk policy was taken out on the entire building, it would cover the cost to replace the burst pipes as well as any ruined materials.
Construction General Liability Insurance
You may sometimes see Construction General Liability insurance and Builder's Risk insurance used interchangeably, but they are not the same thing. It depends on the scope of your project, but if you are doing any major renovations to a property you will most likely need both Builder's Risk insurance and Construction General Liability.
Construction General Liability insurance protects the property owner and investors in the event of an accident or injury on the premises. The major difference between Builder's Risk and Construction General Liability is that Builder's Risk protects property (like materials and equipment), and the Liability insurance protects the people (lawsuits stemming from work site injuries and legal fees, as well as damage of property owned by a third party).
Having liability insurance is essential if you are doing any renovations that require structural changes to the building. It protects your finances in case you are sued for lost wages or medical treatment due to a bodily injury that occurs on the property. If you didn't have liability insurance and something did happen, you might find your house flipping project has to come to a screeching halt so you can spend your time and money fighting for your livelihood in court.
What isn't covered by Construction General Liability Insurance?
Any damage to property of other contractors and people involved in your house flip will be covered by general liability, but not damage to you or your company's own property (that's where Builder's Risk insurance comes in). Construction general liability insurance also won't cover worker's compensation, as well as any damage to company vehicles (you'll need an auto policy for those).
Examples of general liability insurance in action:
Scenario 1: A contractor or other person involved in the renovation brings a friend or family member over to admire the work being done. Suddenly a ladder comes crashing down from the floor above and sends them to the hospital. They decide to sue you for hospital bills. The general liability policy covers the costs of your defense costs, including attorney fees and a settlement.
Scenario 2: You're up on a ladder painting the siding on a house and accidentally drop a gallon of paint, which lands on the shoulder of a contractor working below you. Your general liability coverage would kick in to protect you from financial loss if the contractor sued you.
Vacant Home Insurance
Just because renovations haven't started yet doesn't mean you don't need to insure the property. Vacant home insurance will protect the property if you're going to be starting renovations soon, but there will be some time before the project starts. Don't think that the homeowner's insurance policy you purchased will cover an empty house, because it probably won't. That's because vacant homes are at a greater risk of being broken into and vandalized, sustaining water damage, and also pose a higher fire risk. If you don't purchase vacant home insurance and something does happen to the property, your homeowner's insurance claim will most likely be denied if they find out the house was empty.
Vacant home insurance can be purchased for time periods such as 30-60 days, give or take. It's essential not just for before your renovation project starts, but also after the project is complete. If the house sits on the market for months or weeks, you'll still need that vacant home insurance.
What does vacant home insurance cover?
This type of insurance will cover the building/structure itself in the event of water damage, fire, and extreme weather. You will want to ask your agent to make sure you're also covered for vandalism and theft because sometimes it will not automatically be included in the policy.
Unlike the builder's risk insurance outlined above, vacant home insurance does have some liability coverage built in. You'll want to check with your specific policy, but in general if someone trespasses on the property and injures themselves, your vacant home insurance will kick in if they try to sue you.
While you may sometimes hear "vacant home insurance" and "unoccupied home insurance" used interchangeably, they are actually different types of insurance for different situations. It will also depend on how your insurer defines vacancy. In general, a vacant home will contain no personal possessions and not be checked on very frequently. An unoccupied home usually contains possessions and is in livable condition, but the homeowners are on a prolonged vacation or healthcare facility.
Frequently asked questions
Why is insurance for flipping houses so much more expensive than regular homeowners insurance?
Fix and flip homes are higher risk for a few reasons. First of all, they are usually vacant, which leaves them open to theft and other hazards because there's nobody there all the time to supervise the property. There's also a higher chance of accidents and injury occurring on the premises. There are a few more reasons, but insurance companies calculate the premiums based on the risk, location, location history and a few other factors.
How do I know what type of insurance I need for the house I'm flipping?
You should always do your research before you commit to insuring your assets and investments. That's why we highly recommend using an agent to discuss your situation. An insurance agent does this for a living; they know the language of insurance and can help ensure you're properly covered. They might also see gaps in your coverage that you weren't aware of.
How do I start the process for getting insurance for my house flip?
Contact the insurance agent you use for your homeowners/auto insurance. If you're a Ronnie Shriner Insurance Agency client, you can give our office a call or get in touch with your agent directly. We will start by asking questions about your renovation in order to get you a competitive quote. We'll also be here to answer any of your questions.
How far in advance do I need to have insurance in place before I can start renovations?
It's never wise to do any sort of major home renovation without insurance. When you purchase the flip property, you'll most likely be required to have homeowners insurance in place before the sale will go through. Once you purchase the home, we recommend calling us so we can either get your builder's risk insurance going, or get a vacant home policy in place while you plan for the renovations.
Do I need special insurance if I'm renovating but still living on the property?
If you're living on the property while you're renovating a house, you may not need the insurance types we've discussed on this page. It really depends on the scope of the project. If you're doing minor renovation, such as removing paneling, painting, and landscaping, then your regular homeowners insurance should cover you. That said, when you're renovating your own home, that's a good time to revisit your homeowners insurance limits and talk to your insurance agent to make sure you've got the right coverage.
The contractors I've hired to do renovations have their own insurance. Do I still need it?
If you're using a custom builder that will be doing most of project management and construction, they may have their own builder's risk insurance. That said, if you're managing the entire project and are hiring multiple contractors to do specific things, you'll still want to have your own insurance policy. That's because their insurance covers them, but not you.
How do I know how much coverage I need?
You’ll want to make sure you have enough in coverage to cover the amount you paid for the home and the amount invested for the renovations. For a liability policy, the average amount of coverage is $2 million. Some states have requirements on the amount of coverage required.
If you're just starting out flipping homes for profit, you can use this blog post as a guide on how to make sure you get the right insurance. However, we recommend discussing any details with your insurance agent before you fill out any forms online for a policy. That's because different renovations will require different levels of insurance. There are many options available for that exact reason. We'll help you compare quotes and get the insurance policy that best suits your particular situation, and we'll never try to sell you more than you need.
Please note, we are licensed in VA, MD, NC, SC, TN and GA. If you are flipping a house outside of these states, we recommend calling an independent insurance carrier in your area. It's still a great idea to read through this blog post so you can get a better understanding of what to expect before you make that call.