California has spent the last several years making it easier to build accessory dwelling units (ADUs) and junior ADUs (JADUs). State laws such as SB 13, AB 68 and AB 881 streamlined permitting, and the Department of Housing and Community Development (HCD) publishes an ADU Handbook explaining the rules. Many homeowners in Los Angeles are building ADUs for family, for rental income, or as part of a wildfire rebuild.
Insurance is often an afterthought until a lender, contractor or tenant asks for it. This guide covers the three phases where ADU insurance decisions matter: construction, occupancy by family, and renting to tenants.
Phase 1: During construction
Who carries what
- Your contractor should carry general liability, workers' compensation (if they have employees, and as CSLB requires), and commercial auto. Get certificates of insurance before work begins and verify the contractor's license and workers' comp status on the CSLB license check.
- You need to confirm how your homeowners policy treats a structure under construction. Some homeowners policies treat a new detached ADU as an "other structure," with a limit of a percentage of the dwelling limit, which may be far less than the ADU's cost. Others restrict coverage during major construction.
Builder's risk
Builder's risk insurance covers a building under construction, including materials on site and in transit, against perils such as fire, theft of materials, wind and vandalism. It's often the cleanest solution for a ground-up ADU. Decide in the contract whether you or the contractor buys it. The policy term should match the construction schedule, with an extension option for delays. (We cover builder's risk for full rebuilds in a separate article.)
Garage conversions and attached ADUs
Converting a garage or adding an attached unit changes the main dwelling itself. Tell your homeowners insurer before work starts. Increase the dwelling limit as the value is added, and ask whether the insurer will continue coverage during construction.
Phase 2: After completion, occupied by family
If the ADU is used by family members without rent, many homeowners insurers will cover it under your homeowners policy, either as part of the dwelling (attached) or as an other structure (detached). Questions to ask:
- Is the other structures limit high enough to rebuild the ADU at today's costs? You may need to increase it by endorsement.
- Are your relative's belongings covered? Your policy may cover resident relatives, but an adult relative living in a separate unit may not qualify as a "resident of your household." Renters insurance is inexpensive and removes the doubt.
- Does your liability coverage extend to the ADU?
Phase 3: Renting the ADU
Renting changes the risk, and the insurance. Once a tenant pays rent, you'll typically need one or more of the following:
- A rental endorsement on your homeowners policy for the ADU, if your insurer offers one.
- A separate dwelling fire (landlord) policy on the ADU, if the insurer won't cover it under the homeowners form. A DP-3 provides open-perils building coverage.
- Fair rental value coverage, so a covered loss doesn't cut off rent while the unit is repaired.
- Landlord liability for injuries to tenants or their guests.
- An umbrella with rental units properly scheduled.
Short-term rental of an ADU (Airbnb, VRBO) is a different exposure again, and many standard forms exclude it. Also check local home-sharing rules; some cities restrict short-term rental of ADUs. The City of Los Angeles Home-Sharing Ordinance applies within the city.
Require your tenant to carry renters insurance. Your policies don't cover their belongings.
ADUs in wildfire areas
Many homeowners rebuilding after the January 2025 Eaton and Palisades fires are considering ADUs as part of the rebuild. Two practical issues:
- Availability. If private insurers won't write the property, the California FAIR Plan can write fire coverage on the dwelling and other structures. It doesn't include liability or theft, so pair it with a difference-in-conditions policy. See our guide on FAIR Plan plus DIC.
- Building to wildfire standards. New construction in Fire Hazard Severity Zones must meet California Building Code Chapter 7A ignition-resistant construction standards. Those features, together with defensible space, align with the CDI's Safer from Wildfires mitigation actions that admitted insurers must recognize. Keep documentation; you'll want it at application time.
CAL FIRE's Fire Hazard Severity Zone viewer shows whether your parcel is in a mapped zone.
Earthquake
ADUs are subject to the same earthquake exclusion as the main house. If you buy earthquake coverage, check whether the policy covers detached structures and at what limit. Some earthquake policies limit or exclude other structures. See our California earthquake insurance guide.
Property tax and appraisal notes
A new ADU generally triggers reassessment of the added value by the county assessor (the existing home's base value is not reassessed under Proposition 13 rules). That is a tax issue, not an insurance one, but the number the assessor uses is not your rebuild cost. Insure to replacement cost, using a contractor estimate or a replacement cost valuation.
Lenders and financing
If you financed the ADU with a construction loan, HELOC or cash-out refinance, your lender may require builder's risk during construction and specific coverage after. Read the loan documents and send the lender's insurance requirements to your broker early.
ADU insurance checklist
Before construction
- Verify the contractor's CSLB license, workers' comp and liability insurance.
- Decide who buys builder's risk and put it in the contract.
- Tell your homeowners insurer about the project.
At completion
- Increase your dwelling or other structures limit to cover the ADU at replacement cost.
- Update your home inventory and photograph the finished unit. Our free home inventory template helps.
Before renting
- Add a rental endorsement or a separate landlord policy, with fair rental value and liability.
- Schedule the unit on your umbrella.
- Require tenant renters insurance.
- Confirm short-term rental coverage and local rules if applicable.
For a review of your ADU plan, contact Alishahi Insurance or call (877) 711-4545.
Frequently asked questions
Does homeowners insurance cover an ADU in California?
It may, either as part of the dwelling or as an other structure, but limits are often too low and coverage can change once the ADU is rented. Confirm with your insurer and increase limits as needed.
Do I need builder's risk insurance for an ADU?
Builder's risk is often the best way to cover a ground-up ADU during construction, including materials on site. Your contract should state whether you or the contractor buys it.
What insurance do I need to rent out my ADU?
Typically a rental endorsement or separate landlord policy with fair rental value and landlord liability, an umbrella that schedules the unit, and a requirement that the tenant carry renters insurance.
Can the FAIR Plan cover an ADU?
The California FAIR Plan can cover the dwelling and other structures for fire, but it doesn't include liability or theft. Many owners add a difference-in-conditions policy.
Does earthquake insurance cover a detached ADU?
It depends on the policy. Some earthquake policies limit or exclude detached structures, so ask specifically about the ADU.
Alishahi Insurance · 439 N Canon Dr, Penthouse, Beverly Hills, CA 90210 · (877) 711-4545 · CA License #4348151. General information only.