In-Law Apartment Insurance

July 9, 2020
Written by Paul West, PRMA

In-law apartment. Granny flat. Guest house. Casita… In the insurance world, the technical term for these living spaces is “accessory dwelling unit” (ADU). In the real estate world, the operative term has more or less become, “where can I find one?!”

That’s because in-law apartments are growing in popularity every year.

More than 60 million Americans now live in multi-generational households, according to Pew Research data. Among them, some 14 percent of cohabitating adults are the parent of the household head. That adds up to millions of families sharing their homes in a landlord-tenant-type arrangement, except without any rent changing hands.

What does this mean for their home insurance policies? Great question! Here are some different scenarios:

inlaw apartment above the garage

Our home has an in-law apartment. Do we and our parents need two separate insurance policies?

That depends. First and foremost, your insurance company will want to establish whether your home is truly a single-family home or a multi-family. Homes with private rental units require different coverages (for example, to protect you from a lawsuit if a tenant gets hurt on your property). In order to make this determination, companies will ask things like:

  • Are there separate entrances?
  • Separate utilities?
  • Open access between the two spaces?
  • Separate kitchen/bath within the in-law space?
  • Does the unit have its own address?

Underwriters will also want to know the nature of the relationship between house residents and who else (if anyone) is listed on the home’s deed. Keep in mind, different insurance companies may define the same property in different ways—so there’s some subjectivity involved here.

Yes, our in-law suite is one unit in our multi-family home. Now what?

If your in-law apartment is a space you could just as easily rent out to a stranger (separate entrance, separate utilities, etc.), your parents may want to ask about getting an MA renters insurance policy (even if they are not paying you any rent).

Here’s why: the structure of the apartment itself is likely covered by your insurance policy. But any property your parents bring inside the space would probably not be covered. A renter’s policy would allow them to insure their valuable contents (jewelry, antiques, art, collections) separately from yours. It would also provide them with personality liability coverage—a key protection, especially if they own a dog.

Our house is definitely a single-family home. Our parents have their own space (in the basement, above the garage, etc.). Are they covered by our home insurance?

Maybe. Because in-laws are related to you by blood or law—just like your spouse or your children—your homeowner’s policy would likely protect them and their possessions in the case of most covered loss events (fire, burglary, windstorm, burst pipe, vandalism, etc.).

But would your policy limits be enough to fully protect the different valuables they own? Typically, insurance coverage for possessions inside the home is capped off at some percentage of the home’s insured value. This is something you’d want to explore with an insurance agent. Depending on your situation, you and your parents may choose to “schedule” their valuable items individually, or increase your coverage overall.

Another point to consider: if you made renovations to create a new in-law space in your home, you should discuss these with your agent. In this case, the overall value of your home has probably increased, so the cost to replace it—in the event of a total loss—has increased, as well. Your homeowner’s policy should reflect this.

Our in-law apartment is physically separate from the house (e.g. a carriage house, a renovated barn, or a detached garage). How should we insure it?

With most home insurance policies, other structures on your property (guest houses, sheds, barns, gazebos, pergolas) are covered up to 10% of your main dwelling coverage limit. So, if you have $800,000 in coverage for your home, in theory, you’d have up to $80,000 in coverage for other structures outside. In the case of a fully-functioning guest house, this limit might not be enough. Ask your local MA insurance agency to review any current coverage.

For your parents/in-laws, this scenario is similar to the one above. The home may still be considered a single-family home, and therefore in-laws may technically have property coverage through you, but you’d want to examine your limits and ensure they are sufficient.

Is there anything else to know about insuring an in-law apartment?

Absolutely. Insurance is loaded with details and exceptions. We have tried to outline the main points here, but should stress that every situation is unique. Before you make any decisions, it’s best to discuss your needs with a local insurance agent. Feel free to call our expert team directly at 508.948.3419.

In particular, folks with high-value homes ($1 million and up) may be better served by insurance programs designed to fit this category. HNW insurance programs may offer more flexibility and coverage options, in terms of how to insure you and your in-laws’ valuable property.