What the Division of Insurance Has to Say About Protected Use Accessory Dwelling Units (ADUs)
New survey data from the Executive Office of Housing and Livable Communities shows that homeowners across Massachusetts are embracing Protected Use Accessory Dwelling Units (ADUs). To help consumers who are considering an ADU, the Division of Insurance put together a Q&A to explain potential insurance needs. It is reprinted directly from the DOI website:
Can my home insurance be non-renewed if I add an ADU to my property?
It is possible. Modifications, additions, or new construction to your property may change the risk profile of your property. That is why it is always important to notify your insurer before construction begins to understand how building an ADU might affect your policy. Be sure to tell your carrier if you intend on renting the ADU as this also changes the risk characteristics of the property. As a reminder, insurers always have the right to choose not to renew coverage if the property no longer meets their underwriting guidelines. But if your insurance company does decide to non-renew you, they must send you notice 45 days before your policy expires so that you can look for new coverage. Massachusetts has a very competitive home insurance market with many companies providing home insurance coverage.
What kind of insurance coverage do I need for an ADU?
That may depend on the type of ADU. If you are converting a basement or an attached garage to an ADU, your insurance company will likely deem it as a part of the primary structure and increase your dwelling coverage limits. If you are building a new structure on the property, you will likely need to add an endorsement to your policy to increase the limit or offer separate limits. If the ADU is rented out, you may need landlord coverage. Coverage should include property damage, liability, and loss of rental income if applicable.
No matter what, speaking with your insurance company and/or a licensed agent is important as individual policy needs may differ depending on your situation. Different insurance companies also may offer different coverages.
If you need a primer in the different parts of your home insurance policy, visit our page: Understanding Home Insurance | Mass.gov
What should I do if I can’t find coverage from traditional insurance companies?
If traditional insurers (also known as the admitted market) decline to write you coverage, you can explore other insurance options, such as the surplus lines market, through a licensed broker. The Massachusetts Property Insurance Underwriting Association (FAIR Plan) is the insurer of last resort in Massachusetts and offers basic coverage for properties that can’t secure insurance elsewhere.
Will building an ADU increase my insurance premium?
Most likely, yes. The premium may rise due to the increased replacement cost, added liability exposure, and potential rental activity. However, the increase varies depending on the insurer, the ADU’s size and use, and your overall risk profile. It is a good plan to contact several insurance companies for quotes as it is important to shop around.
I am renting an ADU. Do I need my own renter’s insurance, or will the property owner have enough coverage?
The property owner’s policy may include some coverage for tenants, but it is important when renting that you consider obtaining your own renter’s insurance for coverage for items like personal possessions. Talk with a licensed agent.
Where can I get help understanding local rules and insurance requirements for ADUs?
For insurance, speak with a licensed agent familiar with Massachusetts requirements. You should also talk to your city or town’s building or inspectional services department for permitting guidance and visit Mass.gov/ADU for updates on ADU policies and programs.
