Insurance Requirements for Fix and Flip Projects
Quick Answer
Fix and flip projects require specialized insurance including builder's risk or vacant property policies. Standard homeowner's insurance does not cover investment properties under renovation. Lenders require proof of insurance before closing.
Table of Contents
Why Standard Insurance Does Not Work
Standard homeowner's insurance policies exclude:
- Vacant properties
- Properties under renovation
- Investment properties not occupied by the owner
- Construction activities
Using the wrong insurance policy can leave you completely unprotected if something goes wrong during your renovation.
Types of Insurance for Flips
Builder's Risk Insurance
The primary insurance product for fix and flip projects. Builder's risk policies cover:
- Fire, wind, and weather damage during renovation
- Theft of materials and equipment
- Vandalism
- Structural collapse during construction
- Some policies cover materials in transit
Vacant Property Insurance
If the property will sit vacant before renovation begins, a vacant property policy provides coverage during the gap period.
General Liability Insurance
Protects against claims if someone is injured on the property during renovation. This is essential when contractors and subcontractors are working on site.
Workers Compensation
If you hire employees (not independent contractors), workers compensation insurance is required in most states.
What Lenders Require
Before funding your loan, most fix and flip lenders require:
- Proof of insurance with the lender named as loss payee or additional insured
- Adequate coverage limits that match or exceed the loan amount
- Policy effective date on or before the closing date
- Named insured matching the borrowing entity
How to Get the Right Coverage
- Contact a commercial insurance agent who specializes in investment properties
- Provide project details including purchase price, rehab budget, and timeline
- Compare quotes from multiple carriers
- Review policy exclusions carefully
- Ensure your contractor carries their own liability and workers comp coverage
Common Coverage Gaps
- Flood damage: Not covered by standard builder's risk policies; requires separate flood insurance
- Mold: Often excluded or limited in coverage
- Delayed completion: Some policies expire before the project is finished
- Contractor theft: May require specific endorsements
- Foundation issues: Often excluded from coverage
Related Reading
Key Takeaways
- ✓Standard homeowner's insurance does not cover flip projects
- ✓Builder's risk policies are designed for renovation projects
- ✓Lenders require proof of insurance before funding
- ✓General liability protects against on-site accidents