ADU Insurance in California: The Ultimate Guide

Key Takeaways

While your single-family home is covered under your current homeowners insurance policy, adding an accessory dwelling unit, or ADU, to your property can complicate your coverage. In a state like California that’s prone to natural disasters, you want to make sure you have the insurance you need to protect your investment. If you plan on using your ADU as a rental property, landlord insurance will cover any tenant damage, and if you’re using your ADU as a guest house, umbrella insurance will protect you in the event of a liability claim, like an injury. It’s best to begin the insurance process early—even before construction begins!—to be sure you understand the requirements for ADUs and have adequate coverage in place before anyone moves in.

What Does ADU Mean in Insurance?

An accessory dwelling unit refers to any separate unit or secondary independent living space that’s under 1200 square feet and has a kitchen and bathroom. These include in-law suites, granny flats, and even basement apartments (so long as they have a separate entrance).

In the world of insurance, accessory dwelling units are covered based on the construction type and the usage. For example, if you have an attached ADU—meaning it shares a wall with your primary dwelling—and you’re using it to house aging parents, any damage or losses to the ADU may be covered under your existing homeowners insurance (although you’ll need to increase your coverage to account for the value of the ADU). On the other hand, if your ADU is a detached ADU or garage conversion—and especially if it’s being used as rental housing—you’ll likely need a separate policy for your ADU to ensure both damages and liability claims are covered. It’s important you speak to your current insurance provider before you begin the construction process to understand if your current policy can be amended to include an ADU or if you’ll need to purchase a separate policy. The worst thing you could do is assume your homeowners insurance will cover everything and have a claim denied.

Insurance needs vary by ADU type—clarify if it’s attached, detached, or rental-use early on for accurate coverage.

How Homeowners Insurance Protects Your ADU

If your current policy includes separate structures coverage (meaning it covers damages to detached structures like sheds and detached garages) and you’re not using your ADU as a source of rental income, there’s a good chance your current homeowners policy will cover your ADU. Know, though, that ADUs are not automatically covered. They need to be added to your policy explicitly through a rider or policy extension. Make sure you contact an insurance agent before or shortly after beginning the construction process to see if you’re able to get the coverage you need. Be sure your rider or extension doesn’t just include the physical structure but also has personal property coverage. This will protect you in the case of theft or vandalism.

A standard homeowners insurance policy also typically offers a certain degree of liability insurance. This covers you up to a stated dollar amount in the event that a guest gets injured on your property. This liability insurance doesn’t extend to renters, though. For that, you’ll need landlord insurance.

Homeowners insurance also doesn’t typically cover any claims that may come from the construction or renovation project. For that, you’ll want builder’s risk insurance.

Confirm that your homeowners policy includes detached structures and add riders for personal property within your ADU.

Limitations of Homeowners Insurance for ADUs

Homeowners insurance typically assumes that all people living in the home are blood-related. This means if your ADU sustains property damage from a non-related renter, that damage may not be covered by your current policy. If you’re building an ADU as a source of additional income, we recommend you protect your investment property through landlord insurance.

Many homeowner policies in California also don’t cover losses or damages from natural disasters, whether those claims are made on the primary home or the additional living space. Especially if you’re in a high-risk zone, you may need to pursue earthquake or flood insurance for your ADU.

Lastly, many homeowner policies have very low coverage limits for liability claims. Often, they are as low as $10,000 or even $5,000, which may not cover all medical expenses in the event of an injury on your property, such as a trip and fall. Umbrella insurance will be the best bet for liability coverage.

Don’t assume coverage—especially with renters involved. Clarify with your insurer what’s excluded to avoid costly surprises.

Other Types of Insurance Coverage for ADUs

Homeowners insurance is the type of insurance people are most familiar with because it’s generally the type they already have to cover damages and losses to their primary dwelling. However, if you’re building an ADU on your property, you need to understand and potentially pursue other forms of insurance to make sure you have adequate coverage.

Landlord Insurance for ADUs

If you’re using your ADU as a rental property, a landlord policy is highly (highly!) recommended. Landlord policies cover any damages caused by non-family members (like a tenant) and also cover loss of income, should repairs cause you to be unable to rent your unit for a period of time.
If you’re renting your ADU property to family members—providing affordable housing to adult children, for example—you may not need a separate insurance policy, but it’s always best to check and confirm with your homeowner insurance provider to be sure.

If you’re renting to non-family members, always encourage them to get their own renters insurance to protect their personal property.

Umbrella Insurance

When it comes to liability and injury claims, both homeowner and landlord policies have limited protection for homeowners. If a guest or renter gets injured on your property, high medical bills can create a lasting financial burden.

To protect you against these additional costs, ask an independent agent about umbrella insurance. We often advise umbrella insurance for homeowners using their ADU as a rental or who have a high-value property. If you’re using your ADU for business purposes and expect to have clients on-site, umbrella insurance is also a good idea.

Detached ADUs with luxury features benefit from landlord and umbrella insurance—protect both structure and liability.

Common ADU Insurance Providers in California

While we encourage all homeowners to do their own research and find the insurer and policy that works best for their needs and their budget, if you’re looking for a place to start, here are some of the most common ADU insurance providers in the state:

• Nationwide. Nationwide is a popular homeowner policy provider, and they can often extend the policy to include your ADU as well.
• Wawanesa. Wawanesa is another provider that can oftentimes add an ADU to your existing policy (with rentals being an exception).
• AAA. If you’re a AAA member, they offer competitive rates on ADU insurance (which is separate from your homeowner policy). They also typically offer construction and liability insurance, like umbrella insurance, too.

Informing Your Insurance Provider About Your ADU

It’s absolutely critical that property owners stay in communication with their insurance provider at various phases of the construction process. If a homeowner doesn’t disclose an ADU with their insurance provider and doesn’t get it added to their existing policy through a rider, future claims—like property damage or medical expenses—may be denied. Your insurance provider may also cancel your current policy for non-disclosure, which means your primary house will be without property and liability protection.

The first point of contact with an insurance agent should be before you even begin construction. This conversation will let you know if your type of ADU can be covered under your existing policy or if you’ll need to pursue other insurance options.

After ADU construction is completed, you’ll want to have another conversation with any applicable insurance providers—be they homeowners, landlord, or umbrella—to make sure you have adequate insurance coverage based on the final value of the ADU and all the property inside. If you plan on renting your ADU, a final conversation before any renters move in to confirm policy details is also a good idea. The worst time to realize you don’t have adequate coverage is when you need to file a claim!

Always disclose your ADU to your insurer—undisclosed additions risk claim denials and policy cancellations.

Do I Need Builder’s Risk Insurance for My ADU?

When you work with an experienced ADU builder like Better Place Design & Build, damages or claims that arise due to issues like builder negligence are covered under the contractor’s general or liability insurance. If a tree falls on your ADU during the construction process, though, that’s not covered by your contractor’s insurance—and it is likely not covered under your homeowners insurance, either! For that, you’ll need builder’s risk insurance.

Builder’s Risk Insurance

Builder’s risk insurance covers any claims made to the property during its construction that your contractor’s policy doesn’t cover. This can include damages or losses due to natural disasters, theft, or vandalism. These policies are usually project-specific and last for the duration of construction.

Permits and Compliance

The rate and eligibility for builder’s risk insurance are highly dependent on adherence to all state and local building codes and zoning laws. This is just one reason why it’s so important to work with an experienced ADU builder who will make sure your project is always in alignment with zoning requirements. If, throughout the course of a claim, it’s discovered that your ADU construction wasn’t aligned with all zoning regulations or zoning ordinances, your claim may be denied, leaving you with a potentially sizable bill.

Does Better Place Carry Builder’s Risk Insurance?

Better Place doesn’t carry builder’s risk insurance. Despite the name, builder’s risk insurance is something that’s almost always purchased by the homeowners themselves. However, we do have sizable, comprehensive policies that cover any damages to your ADU due to negligence or the actions of our direct employees or vendors.

What Insurance Does Better Place Carry?

Better Place carries general liability and worker’s compensation policies that can cover damages caused by our employees or vendors, as well as any injuries that may happen on the construction site. We’re happy to share the details of these policies in our initial free consultation. Insurance should always be a point of conversation with any potential contractor, and vague or non-answers are a red flag.

Builder Warranty

Another important point of discussion with any potential builder is their standard construction warranty. This will make sure you are protected if, say, the roof starts leaking or other issues with the physical structure arise shortly after construction is completed. Typically, this warranty differs depending on the part of the ADU in question. Some areas of the build may be covered for 1-2 years and others for 10.

Builder’s risk insurance fills the gap during construction. Homeowners must purchase it—contractor policies don’t cover acts of nature.

Tax Considerations for ADUs

ADU construction creates additional living expenses not only when it comes to increased insurance costs but also increased property taxes. Luckily, in the state of California, building an ADU does not trigger a full tax reassessment of your existing home, and the increase in property taxes is far outweighed by the increase in overall property value. To read more about the impact of ADUs on property taxes, read our separate blog post here.

ADU Insurance Costs and Savings Tips

There are several factors that go into your ADU insurance premium, including type of ADU (is it attached or detached), location (is it prone to natural disasters or flooding?), square footage, and rental status.

Some of these, like location, you can’t really control, but there are things you can do to reduce your insurance costs as much as possible. First, compare providers. Get quotes from at least 3 insurance providers before you make a decision. Also, if you have auto insurance or homeowners insurance through a certain provider, ask them about bundling additional types of insurance, like landlord insurance, as bundling typically saves you money. Finally, ask an insurance agent about possible security upgrades, like security systems, that could lower your premium. To providers, certain security upgrades make claims like theft and vandalism less likely, which allows them to offer you a more competitive rate.

Reduce your premium by bundling policies and upgrading security—ask your provider about ADU-specific discounts.

How Better Place Design & Build Can Assist

While we aren’t insurance providers, we are seasoned ADU builders and pride ourselves on helping homeowners navigate all phases of construction, from the permit application process to the ADU insurance process. We can give you the advice you need to pursue the right kind of dwelling coverage for your ADU, and by following all building code requirements, we’ll never put your policy or potential coverage at risk.

To see what’s possible on your property, reach out for a free consultation.

Better Place provides expert guidance on navigating insurance—starting with compliant plans that keep your ADU covered.