The short answer
Tell your insurer before you build. A standard homeowners policy covers an attached ADU as part of the house, but a detached ADU falls under "other structures" coverage, which is usually limited to 10% of the house's coverage, often far less than an ADU costs. Renting the unit out can change what coverage you need.
How a homeowners policy treats an ADU
- Attached ADU: part of the dwelling (Coverage A), which protects "your house and attached structures" (California Department of Insurance).
- Detached ADU: other structures (Coverage B), for structures not attached to the house, normally limited to 10% of the dwelling limit; you can buy more.
- When you modify your home, tell your insurer in writing: it can change the replacement cost you need to insure. If the insurer estimates replacement cost, it must give you a copy.
If you rent it out
Homeowners policies are written around the people who live in the house; medical payments coverage, for example, excludes business activities, and some policies' other-structures coverage excludes a building rented to someone else. Before you rent, ask your insurer or broker how renting the ADU affects your policy, and whether you need landlord (dwelling) coverage, liability for the rental, or coverage for lost rent while it's being repaired.
If insurers won't cover you
The California FAIR Plan is the insurer of last resort for people who can't get coverage elsewhere, common in high fire-risk areas. Its dwelling policies cover owner-occupied properties of one to four units and rentals, including seasonal ones, for named perils such as fire, up to $3 million per location. Pair it with a "difference in conditions" policy for liability, water damage and theft. Shop the regular market first, through a broker.
General information, not insurance advice. Policies differ; read yours and ask your insurer or a licensed broker.
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