ADU or in-law unit on the property — is it covered by your HO-3?
By Severance Calculator Editorial · Updated
The problem
Accessory Dwelling Units have proliferated since 2017 as state laws (California SB 9, Oregon HB 2001, Washington HB 1110) relaxed local zoning. Homeowners add a 600-1,200 sqft detached unit or convert a garage and rarely tell their insurer. A detached ADU defaults to Coverage B (Other Structures), which is typically capped at 10% of Coverage A. An attached ADU may fall under Coverage A but only if the carrier has the updated sqft on file. Either way, undisclosed ADUs are a structural underinsurance hazard.
The data
A $500,000 Coverage A policy has $50,000 default Coverage B. A typical detached ADU rebuild cost in California (NAHB West $231/sqft × 800 sqft) runs $185,000 — a $135,000 shortfall if the carrier was not told. Attached ADUs that add 600 sqft to a 2,000 sqft primary structure are a 30% Coverage A understatement. Worse, many policies exclude Coverage B for any structure used as a rental, leaving long-term-tenanted ADUs uncovered entirely.
What to do
Notify your carrier in writing the moment an ADU is permitted, built, or occupied. Request an increase to Coverage B (most carriers allow Coverage B to be raised to 20-25% of Coverage A for an additional premium), or — preferred — schedule the ADU on its own dwelling endorsement. If you rent the ADU short- or long-term, you need either a DP-3 endorsement or a separate landlord policy on that structure; the standard HO-3 will not cover rental-occupied structures.