House Flipping Insurance

Learn what type of insurance coverage you need to protect your rehab projects When Flipping Houses.
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House Flipping Insurance

How to Flip Houses / House Flipping Insurance
Disclaimer
This article does not constitute insurance, legal or investment advice.  This article was created for informational and educational purposes only to provide general information on the available insurance options that could be utilized for your properties.  We recommend consulting with professional, licensed insurance companies to ensure you have the appropriate coverage for your properties.

Overview

When new house flippers start flipping houses they usually reach out to their current insurance provider that they already use for their personal home and auto, but flipping houses requires a special type of insurance coverage that a typical Home Owner's Insurance policy does not provide.  

In this lesson, we will discuss what types of insurance coverage you need for your rehab projects, how much it should costs & where to get insurance coverage for your house flips.
House Flipper
FAQ
Do I need insurance for my house flip project?
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Reality check
Yes, insurance protects you and your property from all kinds of perils and liabilities that can happen during your rehab.

Your house could burn down, a worker could fall off of a ladder, your property could be vandalized or tools & materials could be stolen.

The insurance polices discussed below will protect your property and personal assets and provide peace of mind.
House Flipper
FAQ
Okay, so what type of insurance coverage should i purchase for my house flip?
Flipping houses requires special insurance coverage that your traditional homeowner's insurance policy will not cover.

Your traditional insurance provider that you use for your personal residence or auto, will likely not provide the type of policy you need for your house flip.  

House flippers typically buy distressed properties that need significant renovations, that will sit vacant for months while the rehab is being completed. Traditional insurance providers and homeowner's policies view house flipping as 'high risk' and are not designed to protect vacant properties or properties that are needing rehab.

For this reason, when flipping houses you will need to consider 3 Special Types of Insurances:
  1. Vacant Building Policy
  2. Builder's Risk Policy
  3. General Liability Umbrella

Vacant Building Policy

A Vacant Building insurance policy for vacant buildings, meaning no one is living in the property.  For insurers, vacant properties are considered a higher risk, because they are more prone to arson, theft of copper plumbing, vandals and water damage.

Builder's Risk Policy

A Builder's Risk insurance policy covers the renovation portion of the property including materials, fixtures and equipment used in the renovation of the property.  A Vacant Policy may not cover the renovation portion or materials so it's important to consider adding a 'Builder's Risk rider' to your policy.

General Liability Umbrella Policy

A General Liability Umbrella policy will cover any risks above and beyond the your property insurance coverages.  A General Liability Umbrella provides 'umbrella protection' for your entire business in the event of major lawsuit, claim or catastrophic loss.  If you have a high net worth & assets you can be a target for litigation, so a General Liability Umbrella Policy can provide protection & peace of mind for your assets.  

When in doubt, tell your Insurance Provider your business intentions so they can craft a policy that will properly protect you, your property & your assets.
House Flipper
FAQ
How Much Insurance Coverage Do I Need for My House Flip?
All insurance coverage isn't created equal, so it's best to thoughtfully consider how much coverage your need for your house to make sure you aren't under-insured (or over-insured).

You generally have two different options for insurance coverage:
  1. Actual Cash Value
  2. Replacement Cost Value

Actual Cash Value

Actual cash value coverage is based upon the property's value in it's current condition. Actual Cash Value is calculated by taking today's replacement value and deducting depreciation to account for the property's age and wear-and-tear.

Actual cash value leaves you in a tough position because you may not be able to recoup all of your money that you would need to completely re-build the property.

Replacement Cost Value

Replacement cost value coverage is based upon the amount of money it would take to replace your damaged or destroyed home with the exact same or a similar home in today's market.

It's important to note that the replacement cost value only includes the value of the home, but not the value of the land.
In general, at the very least you want to obtain enough insurance coverage to cover the amount you paid for the home (less the lot value) and the amount invested in the property for renovations.

However, in the event of a total loss where you lose the entire structure you will either have to completely re-build the property at full replacement cost or sell off the lot to another investor for them to re-build.

In that scenario, you will want to have enough coverage to pay for the replacement of the property or enough coverage to prevent a loss if you have to liquidate the lot.
House Flipper
FAQ
How much should an insurance policy cost for my house flip?
As a general rule of thumb, your Vacant Insurance policy with Builder's Risk rider should be around 0.5% to 1% of the property value per month.

​So for example, a $200,000 policy would cost around $100 to 200 per month.

A General Liability Umbrella policy is actually quite affordable.  You should be able to get $1mm worth of coverage for only a few hundred dollars.
House Flipper
FAQ
When Should I get Insurance for My House Flip?
Don't wait until the last second to start contacting insurance providers!  As soon as you get the property under contract you should reach out to a few insurance providers to get quotes on insurance coverage and select the best insurance provider for your business.

Remember, as soon as you take possession, the property is your financial responsibility so you will want to make sure you have property insurance in the unfortunate event disaster strikes on day one of ownership!
House Flipper
FAQ
Are there any companies that specialize in house flipping insurance?
Yes, there are insurance providers that provide insurance coverage specifically for house flippers and real estate investors. These companies specialize in providing flexible insurance coverage for vacant properties, renovation projects as well as occupied rentals.

For house flippers that are flipping multiple houses a year, these insurance providers are able to include all of their vacant, rehab properties or occupied rentals on one-schedule and one monthly payment.

Here are a few recommended house flipping insurance providers:
REI Guard House Flipping Insurance

REI Guard

​REI Guard offered by the National Real Estate Insurance Group is developed specifically for residential real estate investment properties including rehabs & rental properties.  REI Guard provides:
  • Occupied, Vacant & Renovation Policy Coverages
  • Named Perils (fire, explosion, windstorm, etc.)
  • Vandalism & Malicious Mischief
  • Liability Coverage
Foremost House Flipping Insurance

Foremost Insurance Group

Foremost Insurance Group provides competitive rates for  Vacant Home Insurance Policies:
  • Occupied, Vacant & Renovation Policy Coverages
  • Named Perils (fire, explosion, windstorm, etc.)
  • Vandalism & Malicious Mischief
  • Liability Coverage

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