Owning and renting

Insuring an ADU

Checked against state laws and official agency sources · Last reviewed October 10, 2026

Does homeowners insurance cover an ADU?

It depends on whether the ADU is attached to your house and how it is used. The National Association of Insurance Commissioners (NAIC), the organization of state insurance regulators, describes the main parts of a homeowners policy:

• Dwelling: "Pays for damage to your house and to structures attached to your house." That description fits an ADU attached to your house.
• Other Structures: "Pays for damage to fences, tool sheds, freestanding garages, guest cottages and other structures not attached to your house." That description fits a detached ADU.
• Personal Liability: "Covers your financial loss if you are sued and found legally responsible for injuries or damages to someone else."

The limit for other structures is usually a percentage of your dwelling limit. NAIC lists the "Typical Limit of Coverage" for other structures as "10% of Dwelling Coverage Limit," and says to check your policy, "as coverage limits might be based on percentages different from those." Check whether that limit would cover rebuilding a detached ADU, and ask your insurer how the ADU is covered and whether you need a higher limit.

Renting changes this. Maine's Bureau of Insurance describes other structures coverage as applying "if the structure is not used for business or rented to others." It says that if you have "a separate structure on your property that is used even partially for business, such as an apartment over your garage that is rented to a tenant," you "need to purchase other coverage. In many cases, an endorsement can be added to the policy." [1][2]

Renting your ADU to a long-term tenant

Homeowners policies are written for the people who live in the home. NAIC says homeowners policies "usually exclude or provide limited coverage for homeowners who are running a business in their home," and that many policies contain a business exclusion that can eliminate liability coverage for business activities.

NAIC describes three typical exceptions to the business exclusion for renting property, quoting a standard insurance text. One is "rental of part of an insured location as a residence ... as long as the occupying family takes no more than two roomers or boarders in a single-family unit." Policies differ, so read yours or ask your insurer whether renting your ADU is covered.

The Texas Department of Insurance (TDI) says "Most homeowners insurance won't cover damage to a rental property, or it might limit what it pays for." It adds that "Landlord insurance can give you added protection" and that it "is mainly for traditional, long-term leases." TDI suggests asking your agent "if it makes sense to add it to a homeowner policy or get a separate one."

What a landlord policy covers: NAIC says a landlord policy "will cover the insured's home, structures on the property, property contents (such as appliances and furniture), lost rental income due to building damage, legal fees and liability claims." It adds that landlord policies may be broader than a homeowners policy "and would, therefore, cost more."

Dwelling policies: NAIC says dwelling policies "may be used to cover owner and nonowner-occupied residences" and are designed to insure the structure, plus fixtures, appliances and equipment kept for maintenance. They may cover "loss of fair rental value when the property becomes unfit for use due to a covered peril." Personal liability and medical payments are "often excluded," but "may be added through a personal liability supplement." NAIC's consumer guide says the Dwelling Fire Form "covers only your dwelling" and "only a few perils."

Renters can insure their own belongings: NAIC's consumer guide says the Tenants Form "is for renters" and "insures your personal property." [1][3][4]

Short-term rentals and Airbnb

Short-term guests are where coverage gaps are most likely. NAIC says: "there may be no coverage if a paying guest falls on a property regularly being offered as a short-term rental. That is because homeowners or dwelling insurance policies are generally not designed to cover accidents arising from short-term property rental, except for 'occasional' exposures."

NAIC also says the Insurance Services Office (ISO), which writes standard policy forms for many insurers, has endorsements that exclude losses from home-sharing, and separate optional coverage that can restore coverage, "broaden coverage to other structures on the property," enhance theft coverage and cover loss of rental income. Insurers would most likely charge for that coverage.

TDI says to ask your insurance company "if you should add coverage for paying guests," that "Some home-share websites and apps offer coverage you can buy," and that landlord insurance "may not be appropriate for short-term rentals."

Washington: state law requires a short-term rental operator to "maintain primary liability insurance to cover the short-term rental dwelling unit in the aggregate of not less than one million dollars," or to book each stay through a platform that provides equal or greater primary liability coverage. A short-term rental there is a stay of "fewer than thirty consecutive nights."

Whether you can rent an ADU short term at all depends on state and local law. See renting out your ADU. [3][4][6][7]

How much coverage after you build

NAIC says your dwelling coverage "should equal the full replacement cost of your home," and that "replacement cost and market value are not the same."

NAIC also warns: "If it drops below 80% of the full replacement cost of your home, your insurance company may reduce the amount that it will pay on a claim." Review your limits when the ADU is finished, including the other structures limit if the ADU is detached.

Two endorsements NAIC describes can matter for a new unit:

• Ordinance or law: "pays for the extra expense to rebuild your home in compliance with building codes and other ordinances or laws that didn't exist when your home was originally built."
• Inflation guard: "raises your dwelling coverage limit annually in line with inflation."

When you get quotes, NAIC says the insurer will usually ask for your home's location, square footage, age and type of construction, and suggests asking: "What does the policy cover? What doesn't it cover? What are the limits to the coverages?" Ask those questions about the ADU specifically, including how it is covered while it is being built. [1]

Flood insurance and ADUs

NAIC says "Homeowners policies don't cover flood damage." You may be able to buy flood insurance through the National Flood Insurance Program (NFIP) or a private insurer, and "If your home is in a flood plain, your mortgage lender will usually require you to buy flood insurance."

The NFIP's Standard Flood Insurance Policy (Dwelling Form) has rules that matter for ADUs:

• One building per policy: "This policy insures only one building. If you own more than one building, coverage will apply to the single building specifically described in the Flood Insurance Application." A detached ADU is a separate building from your house.
• Attached additions: the policy covers additions "attached to and in contact with the dwelling by means of a rigid exterior wall, a solid load-bearing interior wall, a stairway, an elevated walkway, or a roof." At your option, those may be insured separately.
• Detached garages: the house policy can cover a detached garage, limited to "no more than 10 percent of the limit of liability on the dwelling," but "We do not cover any detached garage used or held for use for residential (i.e., dwelling), business, or farming purposes." A garage converted into an ADU is used as a dwelling.
• During construction: the policy covers "A building under construction, alteration, or repair at the described location," with limits until the building is walled and roofed. The deductible doubles if the building doesn't have "at least two rigid exterior walls and a fully secured roof" at the time of loss.

Waiting period: a new NFIP policy, added coverage or increase generally takes effect on "the 30th calendar day after the application date and the presentment of payment of premium." Coverage bought in connection with making, increasing, extending or renewing a loan can take effect at the loan closing, and a few other exceptions apply.

Other perils: NAIC says many insurers sell earthquake insurance "as a separate policy or as an endorsement," and that policies in coastal areas often exclude windstorm and hail. [1][5][8]

Insurance and taxes on a rented ADU

If you rent your ADU, insurance is a rental expense. The IRS says "In most cases, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income."

If you rent part of your property, you divide expenses between the rental part and the personal part. If you pay a premium for more than one year in advance, "For each year of coverage, you can deduct only the part of the premium payment that applies to that year."

See IRS Publication 527 and our guide to renting out your ADU. [9]

Who to ask

How an ADU is covered depends on your policy, so ask your agent or insurance company before you build, rent or list the unit. NAIC suggests getting rate quotes "and key information in writing."

Your state insurance department can confirm whether an agent or insurance company is licensed. For example:

• Texas: TDI takes questions at 800-252-3439. See TDI's tips on renting out your home.
• Maine: the Bureau of Insurance publishes A Consumer's Guide to Homeowners Insurance.

NAIC's A Consumer's Guide to Home Insurance explains policy types, limits and deductibles in plain language. [1][2][3]

Questions people ask