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How to Insure an ADU

Let’s start by taking a couple of steps back: what exactly is an ADU? ADU stands for Accessory Dwelling Unit – you may have heard it referred to as an In-Law Suite, Granny Flat, Studio or Garden Cottage. They are small living or working spaces that are either: 1.) distinct spaces within the home (converted attics and basements), 2.) small units attached to the home (such as an above garage studio), or 3.) a stand-alone structure on the same land lot as your home (such as a detached In-Law Suite or Tiny Home). ADUs have become increasingly more popular as demographic trends change to an aging population, adult children living with their parents for longer and the workforce increasingly moving to a work-from-home structure. ADUs can provide privacy and better accommodation to people within these demographics and can often be a more affordable avenue for families navigating a changing world.

Homeowners have more flexibility with ADUs, and they offer many benefits to your living space:

  • More Space: Rooms in your home may serve many purposes, from hosting guests to office work, and ADUs can provide space flexibility at a reasonable price to take the stress of cramming multiple purposes into a single room away.
  • Enhanced Property Value: You may think of a kitchen or bathroom renovation as the best way to increase the investment on your home, but ADUs can be an even better investment, as they add 20% to 30% value to your home, on average.
    • Don’t forget that as your home increases in value, it should be reflected in your insurance coverage – talk with your insurance agent about the addition to your home.
  • Family Accessibility: Whether you have an aging parent or an adult child who plans to come back home, ADUs are a great way to pursue multigenerational living, while ensuring everyone keeps their private spaces so no one steps on each other’s toes.  
  • Affordability: It’s often less expensive than new construction or moving into a larger home to construct an ADU or install a pre-built unit. You may even be able to find more flexible options regarding financing for an ADU.

Insuring Your ADU

Insurance for an ADU depends on how it is being used, the type of construction, and the size of the structure:

  • Usage:
    • If the ADU is used by the family living in the home as guest quarters, coverage will typically be included under the primary home policy as Coverage B or “other structure coverage.”
      • Extending the structure coverage from “Coverage B” may not include the same perils and coverage advantages as a primary home policy. It is important to know any exclusion or limitations that might apply for an “out-building.”
        • For example, if a tree fell on your primary home, insurance would pay for the replacement cost. If the tree fell on the ‘other structure’ (ADU), the coverage will likely not cover the full replacement cost.
    • If an adult relative is living in the ADU (mother-in-law or adult child) the coverage for the structure is typically included with the main home policy, but the relative living in the ADU should consider a renter’s or tenant policy for their contents and personal liability.
    • If the ADU is rented for a short-term (such as for an Airbnb) or long-term lease, a landlord policy should be considered.
  • Construction Type:
    • If the ADU is site-built construction, the coverage will typically be provided by the standard home policy or a landlord policy.
      • During the construction process it is important to know who is covering “detached building materials” or the partially built ADU, in case there are any stolen or destroyed materials during the process. Check with your contractor to see if they provide coverage, or if you need to provide coverage for the detached materials.  
  • If the ADU is a manufactured home and pre-fabrication that can me moved off the property, a “tiny home policy” might be a better fit. These are specialty policies and only a few companies will write non-site-built construction dwellings used for habitation.
  • Size of the Structure:
    • If the ADU is the same size as the primary home or the value is above $750,000, the ability to extend coverage from a primary home policy might not be sufficient. A stand alone “secondary home policy” on the property should be considered.

If you are thinking about or planning to add an ADU to your property, call or text us at (360) 514-9550. We can help answer all your questions, and as independent agents, we can find the best market for your specific ADU needs. Our team takes an educational approach to insurance, making sure you understand what coverage is best for you and your family.