If you've purchased a fix-and-flip property and are preparing to start renovations, it's important to know what type of insurance is needed at different stages of your project. While you may be under the impression you can just add your fix-and-flip property to your personal homeowner's policy, it may not be as simple as that. To avoid making a costly mistake, you should consult with your insurance agent regarding the coverage you will need in order to avoid loss in case of an accident, theft, vandalism, weather event or other unforeseen threat to your property.
Below are some of the considerations you should be aware of and the insurance products that are available to address the unique risks for fix-and-flip properties:
Builder's Risk Insurance
A typical homeowner’s policy covers risks on an occupied home, but a builder’s risk policy will protect your property from specific types of loss associated with construction. For fix-and-flip projects that include a plan for ground-up construction, this type of policy will cover risks throughout the construction phase—until the fix-and-flip project develops into a finished home.
A builder's risk policy can also come with coverage for things like damage to building materials, tools and appliances—even damage that occurs off-site. For example, "property in transit" coverage will protect materials as they travel from the supplier to your construction site.
Unoccupied and Vacant Home Insurance
Although they may sound like the same thing, an “unoccupied” home is different from a “vacant” one. An unoccupied home is one that is set up for occupancy. For example, the utilities are turned on and there are furnishings and/or personal belongings inside. With an unoccupied home a resident may be absent for periods of time, but the property is expected to be occupied in the near future. A vacant home is one that is not lived in, and has no indicators that an occupant will live there any time soon.
Both unoccupied and vacant home insurance products are specialty policies that provide financial protection from damage or loss of a home that is uninhabited at the time of the claim. You should be aware that a conventional homeowner’s insurance policy typically does not cover fire, theft, vandalism, liability or other claims on an unoccupied or vacant property. For example, if a fire occurs in an unoccupied or vacant home, a standard homeowners policy would likely not cover it, but an unoccupied or vacant home insurance policy would. An unoccupied or vacant home insurance product can be purchased as a stand-alone policy or as an endorsement to your standard homeowner’s policy.
For many reasons, an unoccupied or vacant home is considered a greater insurance risk than an occupied one. Vulnerability to theft and vandalism, lower emergency response times, and inattention to events such as burst pipes, roof damage or faulty wiring are just a few examples of increased risk associated with unoccupied or vacant homes. In theory, for example, a fire taking place at an occupied home would likely be reported and extinguished more quickly than one where no resident is present to discover and report the fire promptly.
Do You Need Unoccupied or Vacant Home Insurance?
This is a question you should ask your insurance agent, but generally speaking, if your fix-and-flip home will be vacant or unoccupied for 30 days or more, an unoccupied or vacant home insurance policy is called for. While terms may vary by policy, an insurance company will typically deny home owners' insurance claims that are made if your home is left unattended for longer than 30 days. The determination of whether your property is vacant or unoccupied will effect your insurance rates, so be sure to speak to your insurance agent. It is quite possible that your insurance company will have specific restrictions around the length of time your fix-and-flip property can remain vacant or unoccupied.
