The Pitfalls of a Fix-and-Flip Insurance Policy

Derek Kartchner | Gila Insurance

If you're flipping a home, your insurance options will be limited. That’s right—many big-name carriers won’t cover you because flipping doesn’t fit their appetite. So, unless you’re asking for problems, don’t insure your rehab under a homeowner or rental property policy. These policies need to be written correctly to ensure you’re protected when you have a claim.

So, what is the “right” policy? That depends—what’s your rehab plan? This will dictate EVERYTHING. A light rehab focusing on interior cosmetic updates (flooring, countertops, paint) requires one type of policy. Adding square footage, gutting the home, or replacing multiple home systems (plumbing, electrical, HVAC, and roof) may require another. Let’s take a closer look.

The Basic Policy Form: Limited Coverage

The most common policy for flips is a dwelling fire policy with a Basic Policy Form. This policy provides coverage on a named peril basis, meaning you’re only covered for specific risks. If it’s not listed, it’s not covered. Coverage usually includes fire, explosion, wind, hail, and a few others, but it is VERY limited. I CAN’T STRESS THIS ENOUGH!

Why? Because insurers know the home will be empty, and you’ll be tearing things apart before fixing them. They also know that massive garbage bins attract thieves, squatters, and partiers. This leaves significant gaps in protection, especially for risks like water damage.

The Option of a Special Policy Form: Broader Protection

Before the current terrible insurance market (yes, rates are rising, and coverage is shrinking—it’s awful), several companies allowed fix-and-flip investors to obtain coverage under a Special Form policy. What does that mean? Instead of only covering named perils, it covers everything unless explicitly excluded. There are always exclusions—such as floods, earthquakes, wear and tear, to name a few, but this policy significantly changes how claims are handled.

A Special Form policy, unlike a basic policy form, can include coverage for water damage, theft, and more—critical protections for properties under renovation.

Can you get this coverage now? Yes, but it depends on your rehab scope. If you’re doing interior cosmetic work, you can get a basic policy from Foremost Insurance Company (one of the companies we represent) with a Comprehensive Endorsement. This endorsement changes the policy language to include Special Form protections. If you qualify, you want this—it costs roughly $15/month and is worth EVERY penny.

When a basic policy form is the Only Option

In some cases, particularly for properties requiring extensive renovations, insurers may only offer a Basic Policy Form due to the increased risk. If this is your only option, understand its limitations and consider adding a Builder’s Risk Policy to better protect your investment.

Conclusion

Choosing the right insurance policy for a fix-and-flip investment is crucial. While a Basic Policy Form may be the only option for heavily distressed properties, investors should prioritize a special policy or a comprehensive endorsement whenever possible. A small additional cost could make a huge difference in the event of a claim.