I’ll never forget my first house flip. The excitement was electric. I saw past the stained carpets and peeling wallpaper, envisioning a beautiful, modern home that a new family would love. My mind was buzzing with paint colors and floor plans. But then, my more experienced mentor asked me a question that stopped me cold: “What’s your insurance plan for this project?”
I remember shrugging and saying, “I’ll just get a standard homeowners policy, right?” He laughed, but it was a kind, knowing laugh. He then explained that using a homeowners policy for a flip is like using a bicycle to haul lumber—it’s the wrong tool for the job, and it’s going to end badly. That conversation was my introduction to the world of flip insurance, and it saved me from a potential financial disaster.
If you’re diving into the exciting, fast-paced world of house flipping, understanding this specific type of insurance isn’t just a good idea; it’s absolutely essential. This guide will walk you through everything you need to know, in plain English, so you can protect your investment and your peace of mind.
What is Flip Insurance, Really?
Let’s strip away the jargon. Flip insurance is a specialized type of property insurance designed specifically for houses that are being renovated or “flipped” for a profit. It’s a short-term policy that lasts for the duration of your project, typically 6 to 12 months.
Think of it this way: A regular homeowners insurance policy is designed for a finished, occupied home where someone lives full-time. A flip property is the complete opposite. It’s a construction zone. It’s often vacant. It’s filled with valuable building materials, and it’s constantly changing. Flip insurance is built from the ground up to handle these unique and risky conditions.
In the insurance world, you might hear it called a “Builder’s Risk” policy or “Renovation Insurance.” While there are subtle differences, for most house flippers, these terms are used interchangeably to mean the same thing: a safety net for your rehab project.
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Why Your Regular Homeowners Policy Isn’t Enough
This is the most critical concept to grasp. You cannot rely on a standard homeowners insurance policy for a flip. If you try, you risk having any claim denied, leaving you to shoulder massive costs alone.
Here’s why they are so different:
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The Vacancy Clause: Most homeowners policies have a “vacancy clause.” If a home is vacant for more than 30-60 days, coverage can be severely reduced or even voided entirely. Insurance companies see vacant properties as high-risk targets for vandalism, theft, and undetected damage (like a slow leak that turns into a mold problem).
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It’s a Construction Site, Not a Home: A homeowners policy assumes a stable, safe environment. During a flip, you have workers coming and going, power tools running, and structural elements exposed. The risk of fire, injury, or accidental damage is exponentially higher. A standard policy is not designed for this level of risk.
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Materials Aren’t Covered: You’ve just spent $10,000 on new kitchen cabinets, appliances, and hardwood flooring sitting in the garage. Under a homeowners policy, those materials likely have little to no coverage. Flip insurance specifically includes coverage for these supplies while they are on-site.
Imagine a scenario: A pipe freezes and bursts in your flip property during a cold snap. Since the house is vacant and the heat is off, the damage is extensive. You file a claim with your standard insurance, only to be told that the vacancy clause nullifies your coverage. You’re now facing $50,000 in water damage repairs out of your own pocket. This is not a rare, hypothetical situation; it happens to investors every year.
What Does Flip Insurance Actually Cover? A Detailed Breakdown
A good flip insurance policy is like a good toolkit—it has the right protection for every part of the job. Let’s break down the core components of coverage you need to look for.
1. Property or Dwelling Coverage
This is the foundation. It protects the physical structure of the house itself from dangers like fire, lightning, wind, hail, and vandalism. The coverage amount should be based on the full projected value of the property after renovations are complete. This is crucial because if you only insure it for the purchase price and it burns down after you’ve added $100,000 in value, you’ll only be reimbursed for the lower amount.
2. Liability Insurance
This is arguably just as important as property coverage. If a subcontractor, a curious neighbor, or even a trespasser gets injured on your property, you could be held legally responsible. Liability insurance covers the associated medical bills, legal fees, and any settlements. Without it, a single lawsuit could wipe out your profits from multiple flips. I always make sure my liability coverage is substantial—usually at least $1 million. It feels like overkill until you need it, and then it feels like a lifesaver.
3. Building Materials and Supplies
As I mentioned earlier, this is a key differentiator. This part of the policy covers the cost of your lumber, drywall, fixtures, appliances, and all the other materials you’ve purchased and stored on-site. A theft of a trailer full of brand-new windows from the driveway would be covered under this provision.
4. Ordinance or Law Coverage
This is a more advanced but incredibly important feature. Let’s say your flip house suffers a fire that damages 40% of the structure. When you go to rebuild, the local building inspector informs you that the entire electrical system needs to be brought up to current code, which is a cost you hadn’t planned for. Standard insurance would pay to fix the fire damage, but not the code upgrades. Ordinance or Law coverage helps pay for these extra costs required by modern building codes. In older homes, this can be a massive financial relief.
The Real Cost: What Factors Influence Your Premium?
“How much does flip insurance cost?” is the natural next question. There’s no single answer, as premiums can vary widely, but they typically range from 1% to 5% of the home’s completed value. For a $300,000 project, you might pay between $3,000 and $15,000 for a six-month policy.
Several key factors determine your final quote:
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Location: Is the property in a high-crime area or a region prone to natural disasters like hurricanes or wildfires? Higher risk means a higher premium.
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Scope and Cost of the Project: A simple cosmetic update will be cheaper to insure than a full gut job that involves moving walls and replacing the roof. The more extensive the renovation, the higher the risk.
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Your Experience: A first-time flipper will often pay more than a seasoned pro with a proven track record of safe, successful projects. Insurance companies see experience as a marker of lower risk.
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Coverage Limits and Deductibles: Just like with car insurance, choosing a higher deductible (the amount you pay out-of-pocket before insurance kicks in) can lower your premium. However, make sure you can comfortably afford that deductible if something goes wrong.
A Step-by-Step Guide to Getting Flip Insurance
Getting the right policy doesn’t have to be confusing. Follow these steps:
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Assess Your Project in Detail: Before you even talk to an agent, have your project details ready. This includes the purchase price, the estimated after-repair value (ARV), the total budget for renovations, and a timeline.
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Find a Specialized Agent or Broker: This is my number one tip. Don’t just call the same agent who handles your car insurance. Look for an independent insurance agent who specializes in commercial lines or, even better, real estate investor insurance. They understand the unique needs of flippers and have access to insurers who offer these specialized products.
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Get Multiple Quotes: Provide your project details to a few different specialized agents. This allows you to compare not just price, but more importantly, the coverage details. The cheapest policy is not always the best if it has critical exclusions.
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Review the Policy Carefully: Before you buy, read the policy. Pay close attention to the perils covered, the exclusions, the limits for materials and liability, and the deductible. Make sure you understand exactly what is and is not protected.
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Bind the Coverage: Once you’ve chosen a policy, you’ll “bind” the coverage, making it active. It is absolutely vital that your policy is in place before you close on the property or begin any work. A single day without coverage is a day you are fully exposed to risk.
Common Mistakes Flippers Make with Insurance (And How to Avoid Them)
Learning from others’ mistakes is cheaper than learning from your own. Here are the big ones I’ve seen:
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Mistake 1: Underinsuring the Property. Insuring for the purchase price instead of the After-Repair Value (ARV). If the house is a total loss, you’ll lose all the equity and sweat you put into it.
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Mistake 2: Focusing Only on Price. Choosing the cheapest quote without reading the fine print can be a catastrophic error. A slightly more expensive policy with robust coverage is always the better value.
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Mistake 3: Forgetting About Liability. It’s easy to focus on the physical building, but a serious injury lawsuit can be far more devastating than a fire. Never skimp on liability coverage.
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Mistake 4: Not Disclosing the Full Scope of Work. If you tell the insurer you’re doing a light rehab but then decide to tear down a load-bearing wall, you could void your coverage. Be transparent about your plans.
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Mistake 5: Letting the Policy Lapse. If your project runs longer than expected, contact your agent immediately to extend the policy. A lapse in coverage, even for a few days, leaves you completely vulnerable.
Conclusion
House flipping is a thrilling blend of vision, hard work, and financial strategy. But beneath the surface of design choices and profit calculations lies the unglamorous, critical foundation of risk management. Flip insurance is not an optional expense; it is a fundamental cost of doing business. It is the shield that protects your capital, your hard work, and your future in the business from the unpredictable.
Viewing insurance as a necessary investment rather than an annoying cost will change your mindset. It allows you to work with confidence, knowing that if the unexpected happens—and in construction, it often does—you have a proven partner to help you recover. Do your homework, work with a specialist, and make sure your investment is protected from day one. Your future self will thank you.
Frequently Asked Questions (FAQ)
Q1: Is flip insurance the same as builder’s risk insurance?
Yes, for the most part, they are used interchangeably for house flipping projects. “Builder’s Risk” is the broader industry term for insurance during construction, while “Flip Insurance” is the common name used by real estate investors for the same type of policy.
Q2: Do I need flip insurance if I’m just doing a cosmetic update?
Yes, absolutely. Even a cosmetic update often involves the property being vacant and filled with new, valuable materials. The core risks of vacancy, theft, and liability still exist, making a standard homeowners policy insufficient.
Q3: Can I get flip insurance for a very short project, like 3 months?
Most providers have minimum policy terms, often six months. However, if you complete your project early, you can typically cancel the policy and receive a pro-rated refund for the unused portion. Always confirm this with your agent before purchasing.
Q4: What happens if my renovation goes over schedule?
You must contact your insurance agent before your policy expires to arrange for an extension. This is a common occurrence in flipping, and agents are used to handling it. There will be an additional premium for the extended time, but it is far cheaper than facing a loss with no coverage.
Q5: Does flip insurance cover my tools on the job site?
This can vary by policy. Some flip insurance policies may offer a small amount of coverage for tools, but it’s often limited. For valuable tools and equipment, you may need a separate “Tool and Equipment” floater or policy to ensure they are fully covered against theft or damage.
