How to Insure an Accessory Dwelling Unit (ADU) in Massachusetts

Accessory Dwelling Units (ADUs) are becoming more common in Massachusetts, especially with the state’s ongoing housing crunch. In fact, in August 2024, Governor Maura Healey signed the Affordable Homes Act, which included a major change: beginning February 2025, ADUs up to 900 square feet are allowed by right in single-family zones across the state.

This new law makes it easier than ever for Massachusetts homeowners to add in-law suites, finished basements, or backyard apartments without jumping through special permit hoops. For many, that means new space for family – or even a source of rental income.

But with the new ADU trend becoming more relevant, more and more questions about how to insure ADUs are emerging. With over 100 years of insurance experience in Massachusetts, we at Berry Insurance can help answer some of those questions!

So read on to learn the right way to ensure your MA ADU.

Table of Contents:

• What is an ADU
• Does your homeowners insurance cover an ADU in MA?
  
• What will my ADU insurance cover?
• How do you insure an ADU under construction?
• How much does ADU insurance cost in MA?

What is an ADU?

An Accessory Dwelling Unit (ADU) is a secondary living space located on the same property as your main home. What sets an ADU apart from a simple extra room is that it’s designed to function as a separate household, usually with its own kitchen, bathroom, and sleeping area.

ADUs can take several forms, including:

• Attached ADUs: A converted basement, attic, or addition built onto your primary home
• Detached ADUs: A stand-alone unit like a garage apartment, or backyard cottage
• Converted space ADUs: An existing structure, like a barn or garage, that’s been remodeled into a livable unit.

Because ADUs are fully functional, they can be used in a lot of different ways: housing for aging parents, private space for adult children, or as a long-term or short-term rental to generate extra income.

Does your homeowners insurance cover an ADU in MA?

In Massachusetts, some towns are encouraging ADUs as a way to expand housing options. But because these units are considered separate living quarters, insurance companies may treat them differently than a main home, depending on their type and their function.

A standard Massachusetts homeowners policy usually covers your primary home and may extend limited coverage to “other structures” (like a detached garage or shed). In some cases, this can include an ADU.

But here’s where things get tricky:

• If the ADU is rented out, your policy likely won’t cover tenant-related risks.
• If the ADU is attached to your home, it may be included as part of the dwelling but you might still need higher limits.
• If it’s a detached structure with tenants, most insurers here in Massachusetts will require an endorsement or a landlord/dwelling policy.

If your current policy falls short, here are the main ways you can protect an ADU:

• Increase dwelling coverage: Given the additional living space, you will likely want to add extra coverage onto your existing policy to include the ADU.
• Landlord or dwelling policy: If you’re renting out the space, you would need this type of policy to protect the structure, provide liability coverage for tenant-related issues, and provide lost rental income. Your tenant would also need renters insurance to cover their own belongings and liability.

What will my ADU insurance cover?

Whether you add an endorsement or buy a separate policy, your policy should include the following key coverages.

• Dwelling: Dwelling covers the actual structure of your ADU if it is damaged from a number of causes. 
• Personal property: Personal property insurance includes all of the “stuff” you own. If your property is damaged or stolen, this section of the policy pays to repair or replace it, subject to your deductible.
• Loss of use: If a home disaster prevents you from being able to stay in your ADU while it is being repaired, your homeowners insurance will pay for temporary lodging for you and your family through the loss of use section.
• Medical payments to others: This section covers emergency medical expenses to a person who is injured on your property from a fall, laceration, a dog bite, or more.
• Personal liability: If someone is injured on your property and sues you for liability, this section covers medical expenses and any legal fees/settlements.
• Personal injury (optional): Though not automatically included on a homeowners insurance policy, if you elect personal injury coverage, it would cover libel, slander, or defamation lawsuits.

How do you insure an ADU under construction?

In Massachusetts, whether you need builder’s risk depends on the scope of your project. A small basement remodel may fall under your existing policy, but if you’re constructing a full detached unit, you will probably need builder’s risk insurance.

Builder's risk is an individualized type of property insurance, formulated specially for buildings under construction. Also known as “course of construction" insurance, builder's risk insurance protects the property and homeowner from financial loss resulting from damage or loss of the project’s structure and materials during the course of construction.

For an ADU project, it can cover:

• The structure itself: Protection for the ADU under construction if it’s damaged by fire, vandalism, theft, wind, or other covered risks.
• Materials on site: Lumber, fixtures, or appliances stored at your property before installation.
• Soft costs: In some policies, additional expenses like permits, architectural fees, or financing costs if a covered loss delays the project.

To learn more about builder’s risk insurance, check out this article: Do I Need Builders Risk Coverage for my Home Project?

How much does ADU insurance cost in MA?

The cost to insure an ADU in Massachusetts depends on the size of the unit, where it is located, how it’s used, construction type and materials, safety features, claims history and more, but here are some ballpark ranges:

• Increasing the dwelling coverage on your homeowners policy: often adds around $300–$1,000 per year.
• Buying a separate landlord policy: typically costs $800–$2,000 per year.
• A builder’s risk policy: typically costs 1-4% of the total construction cost.

Protecting your ADU investment:

Adding an ADU to your Massachusetts property can provide space, flexibility, and even rental income, but it also brings new insurance considerations. Don’t assume your homeowners policy automatically covers it.

And now that Massachusetts law has made it easier than ever to build ADUs, more homeowners will be adding them. That makes it even more important to take a close look at your coverage, understand your risks, and secure the right protection.

So whether you are building a new ADU or seeking coverage for your ADU in MA, feel free to reach out to our team to secure the coverage you need.