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 Los Angeles, Orange County, Ventura or San Diego 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:
While you’re building your ADU, you should strongly consider taking out a “Course of Construction” insurance policy. This policy protects the ADU from various perils during construction such as fire, smoke damage, vandalism, theft, etc. Notably, the most common losses paid out by ADU insurance are vandalism, fire, and theft, in that order of occurrence.
Your existing homeowner’s insurance should cover the liability for any injuries incurred by visitors at the ADU, but you should check with your agent to confirm. You may also consider increasing the limits of your homeowner’s insurance liability coverage to $1M during the construction process. Although this liability insurance doesn’t cover the contractor or their workers, it will cover any other guests or visitors to the ADU, such as friends, city inspectors, etc.
Because your insurance policies don’t cover your contractor’s losses, it’s very important to hire a general contractor who has their own liability and worker’s compensation insurance policies. The contractor’s policy covers losses such as theft of tools or worker injury. It’s also strongly recommended that you ask your contractor or their insurance agent to provide you with a certificate naming you as “additional insured”. This will make their insurance policy the ‘primary’ coverage in case of any losses like worker injury, etc.
If you are planning to secure financing for your Accessory Dwelling Unit or garage conversion through a construction or renovation loan, your lender will most likely request you secure a Course of Construction policy discussed above. Generally, this kind of policy is not issued by conventional home insurance companies. Rather, your insurance agent will request this policy from a specialty company like Zurich, AU Gold, or Lloyds of London.
This kind of ADU insurance will cost you approximately $500-1500 for a six-month policy, which should cover your entire construction period. If you’re solely converting a garage, you may just need a policy called “Builders Renovation” insurance, which will be even cheaper.
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 818-489-8382.
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.
Additionally, 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.
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!
