ADU Insurance Guide: What Landlords Need
Standard homeowners insurance won't cover renters in your ADU. Here's exactly what you need, what it costs, and which providers to call.
The #1 Mistake: Renting Without a DP-3
Your standard homeowner's insurance (HO-3) covers structures on your property, but coverage stops the moment you rent to a non-family member. If a fire destroys your ADU while a tenant lives there, your HO-3 insurer can deny the claim entirely.
You need a Landlord Policy (DP-3) if:
- Renting your ADU for more than 30 days
- Renting to a non-relative
- You want loss-of-rent coverage if the unit becomes uninhabitable
- You want liability coverage for tenant injuries
What's Covered (and What's Not)
Dwelling Coverage (Coverage A) Included in DP-3
Covers the ADU structure itself — walls, roof, foundation, built-in appliances. Insure for full rebuild cost ($250–$400/sf), not appraised value.
Other Structures (Coverage B) Included in DP-3
Covers detached structures like fences, sheds, and garages near the ADU. Typically 10% of Coverage A.
Liability (Coverage E) Included in DP-3
Covers legal costs if a tenant or visitor is injured on the property. Minimum $300K recommended; $500K–$1M preferred.
Loss of Rental Income Included in DP-3
Pays your expected rent if the ADU becomes uninhabitable due to a covered event. Critical for mortgage coverage.
Tenant's Personal Property Not Included
The landlord's policy does NOT cover tenant belongings. Require renters insurance in your lease.
Flood Damage Not Included
Not included in standard DP-3. Requires a separate NFIP or private flood policy. Check FEMA flood maps.
Earthquake Damage Not Included
Not included in standard DP-3. Requires a separate rider or policy. Critical in CA, WA, and OR.
Estimated Annual Premiums by City (DP-3 Policy)
Based on a 500–800 sf ADU with $200K–$350K rebuild value. The national average for landlord insurance in 2026 is $1,895/year — roughly 15–25% more than a comparable homeowner's policy.
| City | Est. Annual Premium |
|---|---|
| Los Angeles | $1,500–$2,800 |
| San Diego | $1,200–$2,200 |
| Portland | $1,100–$2,000 |
| Seattle | $1,200–$2,100 |
| Austin | $1,000–$1,800 |
| Denver | $1,000–$1,900 |
| Sacramento | $1,000–$1,800 |
| Scottsdale | $900–$1,600 |
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6 Insurance Mistakes ADU Landlords Make
1. Hiding the rental from their insurer. If a fire occurs and the insurer discovers unreported tenants, they can deny the entire claim — even on your primary home.
2. Not requiring renters insurance. Your DP-3 doesn't cover tenant belongings or their personal liability. Require proof of renter's insurance ($15–$30/mo for tenants) before handing over keys.
3. Skipping an umbrella policy. A $1M umbrella policy costs ~$200–$400/yr and protects your primary home from ADU tenant lawsuits that exceed your DP-3 liability limits.
4. Underinsuring rebuild cost. Insure for the construction cost ($250–$400/sf), not the appraised or tax-assessed value. Construction costs have risen 20–30% since 2020.
5. Using Airbnb on a long-term policy. Short-term rentals require specific commercial riders or a separate policy. Your DP-3 covers long-term tenants only.
6. Ignoring flood and earthquake riders. Standard DP-3 excludes both. In California, earthquake coverage is critical. In flood zones, NFIP coverage is required by most lenders.
Top ADU Insurance Providers (2026)
Steadily
Landlord-only insurer
Built specifically for rental properties. Fast online quotes. Covers ADUs and small multifamily.
Competitive rates for landlords
Lemonade
Tech-forward insurer
Fast digital quotes and claims. Good for newer ADU landlords. Renters policies for your tenants too.
Often lowest initial quotes
State Farm
Full-service carrier
Local agents who understand ADU regulations. Bundle with your homeowner's policy for discounts.
15–20% bundle discount available
Farmers
ADU endorsement available
Offers ADU-specific endorsements on existing homeowner policies. Strong in California and western states.
Good for attached ADUs
Frequently Asked Questions
Can I add my ADU to my existing homeowner's policy?
Some insurers offer ADU endorsements on HO-3 policies, but coverage is usually limited. A standalone DP-3 is recommended for full protection, especially loss-of-rent and higher liability limits.
What if my ADU is for family, not rent?
If a family member lives there rent-free, your HO-3 may cover the structure (as 'other structures'). Check with your insurer. The moment you charge rent, you need a DP-3.
Does ADU insurance cover construction defects?
No. Insurance covers sudden events (fire, storm, theft), not gradual issues like settling or contractor errors. For construction protection, require your GC to carry builder's risk and liability insurance.