Once you convert a garage into an ADU, you’ll need to update your homeowners insurance to cover the added living space and, if you rent it out, add landlord or rental coverage. An unpermitted or uninsured ADU can leave you exposed if something goes wrong. Here’s what to know about insuring a garage-conversion ADU.
When it comes to building an Accessory Dwelling Unit (ADU) or even just a garage conversion, there are many details to consider and a lot to know. This blog is specifically about ADU insurance, but you can find more info on my other blogs about building an ADU or a garage conversion, the costs involved, how to find a contractor, and even some cost-saving tips. Learn ADU meaning here.
Here at GreatBuildz, a free service that connects homeowners in California with reliable general contractors, we speak to homeowners every day about the details of their ADU or garage conversion project – and this blog will provide some information you should know about ADU insurance.
I interviewed Farmers Insurance super-agent Jillian Walker and here’s what she had to say about ADU insurance:
Let’s start with a common misconception. Most people believe their existing homeowner’s insurance policy will cover their new ADU or garage conversion. Unfortunately, this usually isn’t the case. Even if there is some level of coverage for “separate structures” like an ADU, the amount insured is usually much lower than you need for a full accessory dwelling unit.
ADU Insurance During Construction:
1. Course of Construction Insurance
You should strongly consider taking out a Course of Construction insurance policy when building your ADU. This policy protects the project from a variety of potential risks during the construction phase, including fire, smoke damage, vandalism, and theft. Among these, the most frequently reported claims are vandalism, followed by fire and theft. Having this policy in place gives you peace of mind in case the unexpected happens while your ADU is still being built.
2. Homeowner’s Liability Coverage
Your existing homeowner’s insurance will typically cover liability for injuries to visitors on your property, including at the ADU during construction. This could include friends, neighbors, city inspectors, or delivery personnel. However, it’s important to confirm this with your insurance agent. It’s also wise to consider increasing your liability limits to $1 million during the construction period. Note that this coverage does not extend to your contractor or their workers, so you’ll still need to verify that your contractor is properly insured.
3. Contractor’s Insurance (Critical!)
Because your own insurance policies won’t cover losses related to your contractor’s equipment, injuries, or crew, it’s essential to hire a licensed general contractor who carries their own liability and worker’s compensation insurance. These policies protect them in the event of tool theft, jobsite accidents, or injuries sustained by workers. You should also ask your contractor, or their insurance agent, to provide you with a certificate of insurance that names you as an “additional insured”. This step ensures that their policy becomes the primary coverage in case of any claims, offering you extra protection throughout the project.
4. Insurance and ADU Financing
If you’re financing your ADU or garage conversion through a construction or renovation loan, your lender will likely require that you carry a Course of Construction policy. These policies aren’t typically offered by conventional home insurance companies, so your insurance agent will need to source one from a specialty provider. Some well-known companies that offer this type of coverage include Zurich, AU Gold, and Lloyds of London. Without this policy, many lenders won’t approve the loan, so it’s a critical part of the financing process.
5. Cost of ADU Insurance
A Course of Construction policy generally costs between $500 and $1,500 for a six-month term, which should be enough to cover most ADU construction timelines. If your project is a simpler garage conversion rather than a new build, you may only need a “Builders Renovation” insurance policy. This is typically a more affordable option and still provides essential protection during the renovation process.
ADU Insurance after completion:
Once your Accessory Dwelling Unit is complete, you’ll need to contact your homeowner’s insurance agent and ask that this structure be added to your policy. Let them know you’ve got a new separate structure on your property and whether this structure has been assigned a new address. They will either increase the amount of your ‘separate structures’ coverage or add another policy to your account to cover the ADU. In most cases, your existing insurance company can handle this change, but some companies may not be able to accommodate specific scenarios. For example, some insurance companies will not insure a garage conversion with second-story addition; in this case, your insurance agent will have to find you a different insurer.
A quick note for those homeowners planning on installing a pre-fab, modular, factory-built, or container ADU, or a tiny house: You will need a separate ADU insurance policy from your current homeowner’s insurance to cover this new structure. Not all companies will insure this style of structure, so your insurance agent will have to find a specific insurer that does to write this policy. The good news is it generally is a very reasonably priced form of insurance.
Assuming you’re planning on using the ADU or garage conversion for your personal use (guesthouse, office, family accommodations, etc), the above revision to your homeowner’s insurance policy should be sufficient for you. However, if you’re planning on renting the ADU, it’s a very good idea to consider purchasing a “landlord protector” policy.
This “landlord protector” policy is for your rental property, and it covers standard losses like fire, smoke, vandalism, storms, etc. as well as covers the landlord’s liability of being sued by the tenant for injuries. Most policies come with $1M of this liability coverage as well as medical pay coverage that will pay a certain amount for tenant injury medical expenses. Please note this ADU insurance does not cover things like loss of rental income or tenant eviction, etc.
If you’d like to learn more about ADU insurance or garage conversion insurance, feel free to reach out to Farmer’s Agent Jillian Walker at jillian@jbinsuranceserviceinc.com or 818-317-3567.
ADU Contractors
As I mentioned above, its extremely important to hire an ADU contractor who is fully insured, including both General Liability and Workers Compensation insurance. To verify this, ask the contractor to provide you with an insurance ‘cert’ (short for certificate). Review this cert to validate they have both forms of coverage and also check the coverage period of the insurance policy. If the policy will be ending in the near future, make a note for yourself to ask the contractor for a new cert at the time of expiration.
You can call the insurance agent listed on that cert. and ask any questions you may have about the policy and renewal. You can also ask the insurance agent to provide you whats called a “loss run” which details any insurance claims the contractor has had over the last 3-5 years. And dont forget to ask the insurance agent to add you as additional insured and prove you a cert evidencing this.
Frequently Asked Questions
Do I need to update my insurance after a garage conversion?
Yes. Converting a garage into an ADU adds living space and value, so you should update your homeowners policy to reflect it. If you rent the ADU out, you will also want landlord or rental dwelling coverage. Tell your insurer once the conversion is permitted and complete.
Does homeowners insurance cover an ADU?
A permitted ADU on your property can usually be covered under your homeowners policy or an endorsement, but you need to add it so the coverage reflects the added square footage and value. If you rent it, a landlord policy or rider is typically needed for liability and loss of rent.
What happens if my ADU is unpermitted?
An unpermitted ADU can create serious insurance problems: a claim may be denied or reduced because the structure was not disclosed or built to code. Legalizing the conversion with permits protects both your safety and your coverage, which is one reason permitting is worth doing.
If you want to learn more about the process of building an ADU or garage conversion project in in Los Angeles, Orange County, Ventura or San Diego, or if you’re ready to take the next step and talk to a local contractor or designer/architect about your specific project, feel free to call one of our friendly GreatBuildz staff at 818.317.3567 or submit your project at www.GreatBuildz.com.
Check out the GreatBuildz Guide Blog for more construction tips and advice for any type of home remodeling project!
