Insuring a Flip: The Coverage Lenders Expect

A flip is usually vacant, half torn apart and full of workers and materials. A standard homeowner policy is not built for that, and many exclude vacant or under-renovation homes. Lenders typically require property coverage designed for renovation or vacancy, plus liability insurance, with the lender named on the policy before closing.

Why normal coverage falls short

Homeowner policies assume someone lives in the house. Many limit or drop coverage after the home has been vacant for a set period, and they often exclude damage tied to construction. A flip faces higher risks of theft, vandalism, fire and water damage, all while nobody is there at night.

The main policy types

Builder's risk. Covers the structure and the work in progress during renovation. It typically protects against fire, wind, theft and vandalism, and often covers materials stored on site. Coverage is usually set to the completed value of the project, not just the purchase price.

Vacant dwelling. Covers a property sitting empty, such as before work starts or while it is listed. Some investors use it alongside or in place of builder's risk, depending on the scope and the insurer.

General liability. Covers injury claims from anyone on the property: a neighbor, a buyer at a showing, or a trespasser. Your contractors should also carry their own liability and workers' compensation coverage, and you should collect certificates from them.

What lenders usually ask for at closing

• An insurance certificate or binder naming the lender as mortgagee or loss payee, and often as additional insured on liability
• Coverage amounts at or above what the lender requires
• A policy period that covers the loan term
• Proof the first premium is paid

Requirements differ from lender to lender, so get the exact coverage types, amounts and naming language in writing before you bind a policy.

Keep coverage current as the project changes

Your risk changes from purchase to rehab to listing. Tell your agent when work starts, when it finishes and when the house goes on the market. If the project runs long, extend the policy before it expires.

Example (illustrative only): An investor buys a house for $200,000 with a $70,000 rehab. If the property policy covers only $200,000 and a fire hits after most of the work is done, the investor could be short tens of thousands of dollars on the rebuild. Insuring to completed value avoids that gap.

Mistakes to avoid

• Using a homeowner or landlord policy on a vacant rehab
• Insuring only the purchase price
• Letting coverage lapse between phases
• Skipping liability coverage
• Getting the lender's name or address wrong on the certificate, which can delay closing

What this means for you

Call an agent who writes investor and renovation policies before you go under contract. Price the premium into your budget, insure to completed value, and keep the policy active until the deed transfers at sale.

Lining up your next flip? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.