How to Insure Your Real Estate Investment

Insurance companies evaluate policies according to risk. Houses sitting vacant during a flip are often difficult and expensive to insure, but it can be done. Insuring your properties during a flip can protect you from financial liabilities, which may be more than you’re aware of.

Examine Your Risks

Real Estate Risks

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What can happen to your investment property during a flip or while under renovation? Here is a partial list of what can happen to an empty home during a flip, which concerns both you and your insurance company.

  • Empty homes attract vagrants, who might cause damage
  • These homes are targets for vandals
  • Vacant homes are more susceptible to fires caused by faulty wiring or started by vandals or vagrants
  • Lightning, hail, wind and other natural disasters threaten these unprotected homes
  • Tools, equipment, home appliances and fixtures lure thieves
  • Construction workers can become injured working here
  • Curious kids, pets and mischievous teenagers can wander in and become injured

Hence, your liability goes beyond the value of the property. It might include medical bills and loss of equipment that belongs to you or the construction workers in the home. Flipping insurance helps protect you against these loses, as well as property loss and damage.

Contact Your Insurance Company

Real Estate Insurance

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The first step in getting flipping insurance is to contact your insurance agent and discuss what you need protection from. The coverage you need depends on the state of the home, the extent of the renovations, the value of the home and other factors. Here are some things you need to discuss with your insurance agent.

  • What is the current value of the property?
  • Are there any items in the home (appliances, furnishings, etc.) of special value?
  • Will workers be inside the home?
  • Are your contractors covered by workman’s comp and liability insurance?
  • Is the home in a relatively safe neighborhood?
  • Will tools and construction equipment be kept in the home unattended?

Always be upfront about the status of the home. Insurance companies are not obligated to pay for a claim if you have misrepresented the condition of the home or the fact it’s unoccupied. Ask specifically about home flipping insurance, builders risk insurance or empty house insurance, depending on the status of the property.

What Can You Afford to Lose?

Protect Investments

Image via Flickr by Piddleville

Selecting a policy to protect your investment is not about the cheapest coverage, it’s about protecting what you can’t afford to lose. What would your financial situation be if a neighbor’s child wandered into the house and got hurt? How would it affect your finances if a worker was injured? Can you take the financial hit if the house burned? Most flipping insurance covers the following:

  • Fire and smoke damage
  • Lightning strikes
  • Hail damage
  • Wind damage
  • Explosions
  • Aircraft accidents
  • Vehicle accidents
  • Vandalism

However, each insurer is different, as is each policy. Go over the coverage with your agent and ask about possible riders to cover you for events that fall outside your policy. Some investors put a temporary rider on their own homeowner’s policy to cover liability issues. Others are careful to hire contractors who offer their employees workman’s comp and liability insurance to cover them in the event something goes wrong.

Nobody ever regretted being covered by insurance, but many investors have lived to regret a lack of coverage when it was truly needed.

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