Understanding Home Insurance for Properties with Accessory Dwelling Units (ADUs)

Understanding Home Insurance for Properties with Accessory Dwelling Units (ADUs)

When it comes to home insurance, properties with Accessory Dwiling Units (ADUs) present unique considerations that homeowners should be aware of. An ADU, also known as a granny flat, in-law suite, or backyard cottage, is a secondary housing unit on a single-family residential lot. As more homeowners opt to add ADUs to their properties for extra income or to accommodate family members, understanding the implications for home insurance is crucial.

Defining Accessory Dwelling Units

ADUs can be attached to the main home, like a garage conversion, or detached, like a standalone structure. They typically include a kitchen, bathroom, and living space, making them fully functional as separate living quarters. Due to their increased popularity, local zoning laws have been adapting to facilitate the creation of ADUs, but it\'s imperative to check your local regulations before planning to build an ADU.

The Impact of ADUs on Home Insurance

Insurance Coverage Increases

First and foremost, adding an ADU typically increases the amount of coverage needed. Since an ADU constitutes additional living space, it also adds value to your property. When determining how much additional coverage is needed, consider the construction costs, potential rental income, and the contents within the ADU.

Liability Concerns

Having an ADU also raises liability concerns. If you\'re renting out the ADU, there\'s the potential for tenant injuries or other liability issues. It\'s important to ensure that your policy covers these eventualities. Also, inform your insurance provider about the ADU; they may require an endorsement or a specific landlord insurance policy if you’re planning to rent it out.

Loss of Use Protection

Should a covered peril occur, causing your ADU to become uninhabitable, \"loss of use\" coverage would compensate for the rental income you\'d lose during repairs. This is an important aspect to consider for those relying on income from their ADU.

Replacement Cost vs. Actual Cash Value

Homeowners should also contemplate whether their ADU is covered for replacement cost or actual cash value. Replacement cost coverage will pay to rebuild the ADU at current market prices for labor and materials, whereas actual cash value coverage takes depreciation into account and generally results in a lower payout.

Flood and Earthquake Coverage

Particularly relevant for those living in areas prone to natural disasters, separate flood or earthquake insurance may be necessary. Standard home insurance policies don\'t usually cover these risks.

Special Considerations when Renting Out Your ADU

Higher Premiums

Renting out an ADU might lead to higher home insurance premiums due to the increased risk associated with tenants. Insurers often see rental properties as carrying a higher risk of claims than owner-occupied homes.

Tenant\'s Insurance

Encouraging tenants to have their own renters insurance can provide an additional layer of protection as it covers their personal belongings and provides liability coverage for their actions.

Regulatory Compliance

Before renting out an ADU, ensure that you comply with all local laws and regulations. Non-compliance could potentially void certain aspects of your insurance coverage.

Privacy and Boundaries

Clarify the boundaries between the primary dwelling and the ADU for privacy and insurance purposes. If shared spaces exist, such as backyards or driveways, discuss these with your insurance agent to understand how coverage applies.


As ADUs continue to gain popularity, homeowners must adjust their insurance policies to account for the added value and liabilities these structures bring. Reviewing your existing policy, consulting with professionals, and understanding the special considerations of renting out an ADU are pivotal steps in obtaining suitable coverage. Properly insuring your property with an ADU protects your investment, ensures compliance with regulations, and provides peace of mind. With thorough research and careful planning, you can secure comprehensive home insurance that safeguards your property and financial interests in the long run.

This article was contributed on Jun 29, 2024