What Insurance Do You Need for Flipping Houses?​

That's a question we get all the time, and the short answer is a definitive yes.

Think of it this way: buying insurance isn't just a cost, it's an investment in your peace of mind and your financial security. A house flip is a business, and like any business, it has risks. Your project could be a few weeks from completion and an unforeseen disaster could wipe out all your hard work and profit in an instant. Your house could catch fire, a worker could fall off a ladder, or the property could be vandalized. Without the right insurance, you could be on the hook for all of it. The policies we'll discuss below are designed to protect you, your property, and your personal assets from these very real perils. They’re the safety net that allows you to focus on the rehab without constantly worrying about what could go wrong.

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.  

Why? Because house flippers typically buy distressed properties that need significant renovations and will sit vacant for months while the work is being done. Traditional insurers view these vacant, under-renovation properties as "high-risk" and their standard policies aren't designed to protect them. For this reason, when flipping houses, you need to consider three specific types of insurance to cover your project.

There are three essential types of insurance you'll need to protect your fix-and-flip project. These policies work together to create a safety net for both your property and your personal assets.

Think of a Dwelling Policy as the foundation of your insurance plan. This policy provides coverage for direct, physical damage to the property itself. Flippers most often use this for a vacant building under renovation.

A Dwelling Policy is different from a standard homeowner's policy, and it's a critical distinction to understand. A typical homeowner's policy is a package deal designed for a home you live in, covering the dwelling, personal property, and personal liability. It's built on the assumption that someone is there to keep an eye on things, deter thieves, or notice a leaky pipe.

For insurers, a vacant property is considered a higher risk. It's a magnet for trouble—a target for arson, a spot for vandals, and a place for thieves to steal valuable materials like copper plumbing without being disturbed. A dwelling policy is specifically tailored for these non-owner-occupied properties, and it's essential that your insurance agent understands your intentions for the property and the scope of the renovation so they can assign the appropriate values for both the building and the renovation itself.

A builder's risk policy is a special type of insurance that covers a property while it's under construction or renovation. Think of it as a comprehensive shield for your project, protecting against damages that occur during the rehab process.

This coverage is crucial because a standard dwelling policy may not protect a property undergoing significant renovations. A dwelling policy typically covers the existing structure, but a builder's risk policy extends that protection to new construction materials, fixtures, and equipment on site, even before they are installed. For instance, if you have new cabinets and flooring delivered to the property that are then destroyed by a fire or stolen, a builder's risk policy would cover the cost of those materials.

It also covers the physical damage to the property itself during the construction phase. If a heavy storm blows in and causes part of the roof to collapse, damaging the interior, this policy would cover the cost of repairing the structure.

Because it's a specific type of insurance, it's often added as a "rider" to your dwelling policy to ensure you have complete coverage from the moment you start construction until the project is complete.

Not necessarily. Your general contractor's insurance typically covers them and their crew, but it may not fully protect your materials and the property itself.

A Builder's Risk policy is specifically designed to cover physical damage to the property during the construction process, including the materials, fixtures, and equipment you own that are waiting to be installed. We've seen projects where a fire started in the middle of a kitchen remodel and destroyed not only the new cabinets, but also the appliances and tools that were on site. A builder's risk policy would cover that.

A General Liability Umbrella Policy is a big one for protecting your personal assets. This policy provides coverage for bodily injury or property damage that occurs on your property, protecting your personal assets from costly claims and lawsuits.

It's a crucial piece of your insurance puzzle, and it's needed more often than you think. A delivery driver could slip and fall on a patch of ice, a curious neighbor could wander onto the property and injure themselves, or a subcontractor could get hurt and sue you for negligence, even if they have their own insurance.

This policy is your first line of defense against these kinds of claims and lawsuits. We recommend a minimum of a $1 million policy. It's surprisingly affordable and provides a critical layer of protection. Don't skip this.

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 have two primary options for coverage levels: Basic Form and Special Form.

Basic Form provides coverage for the causes of loss explicity listed in the policy, all other causes of loss are excluded.

For example, a basic policy might cover fire and wind damage, but exclude theft or water damage from burst pipes. It's a cheaper option, but we've found that it's often not worth the risk. We once had a flip where a cold snap caused a pipe to burst, flooding the entire basement. If we had opted for the cheaper basic form, we would've been out a ton of money.

While Basic Form coverage can save you 25-30%, you need to consider the exclusions and the risks.

This is what we always recommend. A Special Form Coverage policy covers all causes of loss except for those specifically listed as exclusions. This puts the burden of proof on the insurance company to prove a loss was caused by an exclusion. The peace of mind is worth the extra cost.

Common exclusions to watch out for are things like sewer & drain backup, earthquakes, sinkholes, floods, and intentional damage. You can often buy back some of these through additional endorsements.

You also have the option of two types of settlement methods that affect your insurance costs and the amount you can recover the event of a loss.

Actual cash value coverage settles claims 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.

This is what you want. RCV pays out the amount it would take to rebuild or replace the damaged property with a similar one in today's market. It's the only way to truly protect your investment and ensure you can complete the rehab after a total loss.

At a minimum, you should have 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.

That's a valid concern, but the cost of not having the right insurance is far, far greater.

Insurance for a house flip is more expensive than a standard homeowner's policy, and for good reason. It's a higher-risk investment for the insurer. According to our friends at Obie Insurance, house flipping insurance can cost between 15% to 25% more than a standard homeowner's insurance policy.

Overall, the cost varies widely based on your geographic location, the value of the property, the scope of the renovation, and the level of coverage you choose.

Depending on the state and the size of the property, a full house flipping policy can typically range from $1,000 to $4,000 per year.

Based on our experience, our dwelling policies with a builder's risk rider have typically been around 0.5% to 1% of the property value per month. So for a $200,000 policy, you might be looking at $100 to $200 per month. A General Liability Umbrella Policy is actually quite affordable, often only a few hundred dollars for $1 million in coverage.

Just as you wouldn't use your family doctor for a major surgery, you shouldn't use your personal auto and home insurer for a house flip. They just aren't set up for it. You need a company that specializes in insuring real estate investors.

Thankfully, there are providers who understand the unique needs of a house flipping business. These companies offer flexible insurance solutions for vacant properties, renovation projects, and even occupied rentals if you decide to keep a property for a while. For investors who are doing multiple flips a year, some of these companies can even put all of your properties on a single schedule with one monthly payment, making your life a whole lot easier.

We have relationships with a number of insurance providers that specialize in real estate investor insurance. When we're flipping houses, we always get quotes from providers like Obie Insurance and National Real Estate Insurance Group (NREIG). They understand the real estate investing world and are set up to give you the exact coverage you need. We've found that they're not only competitive with their pricing, but they are also experts in this space, so they'll work with you to find a policy that fits your specific project.

The last thing we'll tell you is this: Don't wait until the last minute to get a quote. The moment you get a property under contract, you should start shopping for insurance. You want to have a policy in place the moment you take possession. A fire, a burst pipe, or an accident can happen on day one, and you want to be protected from the start.

House flipping insurance is not an optional expense. It's a fundamental part of your business plan and a critical investment in your financial security. You've worked hard to find the right deal, secure financing, and plan your rehab. The last thing you want is for an unforeseen disaster to wipe out your profit or, worse, put your personal assets at risk.

By understanding the different types of policies, the coverage you need, and where to find the right providers, you can protect yourself and your business. The peace of mind that comes with knowing your investment is secure is invaluable. At FlipperForce, we believe that success in house flipping comes from being prepared and using the right tools.