Insurance Curator Owning a primary home that also contains a rental unit or an Accessory Dwelling Unit (ADU) creates mixed-use exposure: you’re both a homeowner and a landlord. That mix changes your insurance needs for property, liability, and short‑term rental exposures. This guide—focused on U.S. homeowners, with examples from Los Angeles, CA; Austin, TX; and Miami, FL—explains the best insurance options, estimated costs, recommended endorsements, and top carriers to consider.
Why standard homeowners insurance often isn’t enough
Standard HO-3 homeowners policies assume the dwelling is owner-occupied. When you rent an ADU or in-law suite, insurers see increased risk: more occupants, greater wear-and-tear, and potential tenant liability. If you don’t disclose rental use, claims can be denied or coverage cancelled.
Common gaps when using a standard HO-3 for rental exposure:
- No coverage for tenant-caused damage to the building beyond typical homeowner perils.
- Liability coverage may not be adequate for rented-unit incidents.
- Many insurers require a landlord or mini-landlord endorsement for ADUs or in-law suites.
See options below for how to close those gaps.
Primary policy choices: homeowner endorsement vs landlord policy
You have two practical routes if you own rental units or ADUs:
- Add a landlord or rental endorsement to your homeowner policy (for short-term or incidental rentals).
- Buy a dedicated landlord (DP) policy, often called DP-3 for single-family rental dwellings.
Quick comparison
| Feature | HO-3 with landlord/ADU endorsement | Landlord policy (DP-3 / dwelling fire) |
|---|---|---|
| Designed use | Owner-occupied with incidental rental | Intentional rental / long-term tenant |
| Personal property coverage | Typically limited or excluded for tenant’s belongings | Usually excludes tenant belongings; available for owner’s appliances |
| Liability limits | Homeowner limits apply but may need bump-up | Liability available; often lower than HO-3 unless increased |
| Premium | Lower for incidental, higher than plain HO-3 | Typically higher than HO-3; reflects rental risk |
| Best for | Occasional, short-term rentals or owner lives on-site | Full-time rental properties and ADUs rented separately |
Liability options: make sure you’re covered
Liability risk increases when you rent. Consider:
- Increase your underlying liability on the HO-3 or DP-3 to at least $300k–$500k.
- Add an umbrella policy (recommended $1M–$5M) to protect personal assets—especially critical in states with high medical costs like California and Florida.
- For short-term stays (Airbnb, VRBO): add a host protection endorsement and verify the insurer’s position on short-term rentals.
Example: If your ADU in Los Angeles hosts short-term guests part-time, a $1M umbrella can protect against costly premises liability claims common in LA slip-and-fall litigation.
Coverage specifics to request (check endorsements)
- Replacement cost on the dwelling (NOT actual cash value) — ensures full rebuild after a covered loss.
- Loss of rental income (Rents loss of use) — covers lost rent during repairs.
- Vandalism and tenant damage endorsement — many DP policies include this; HO-3 endorsements may not.
- Building ordinance/law coverage — essential in earthquake-prone areas like California.
- Short-term rental endorsement — required by some insurers for Airbnb/VRBO style rentals.
- Flood and earthquake — standard homeowners and DP policies exclude flood and earthquake; buy separate policies or state/FA programs in high-risk areas.
For guidance on Replacement Cost vs Actual Cash Value, see: Best Insurance For Homeowners: Replacement Cost vs Actual Cash Value—Save on Claims.
Estimated costs: what to expect (U.S. averages and local examples)
Insurance costs vary by state, claims history, construction, and occupancy. Below are estimated annual premium ranges for a homeowner with an ADU/rental exposure (owner-occupied with ADU or small single rental unit), as of 2024 market averages and insurer quotes. These are estimates—get local quotes.
| Carrier (example) | Coverage type | Typical est. annual premium (ADU/rental exposure) |
|---|---|---|
| State Farm | HO-3 + landlord endorsement / DP-3 | $1,100 – $2,000 |
| Allstate | HO-3 + endorsement / DP-3 | $1,200 – $2,400 |
| USAA (eligible military) | HO-3 + endorsements | $700 – $1,500 |
| Lemonade | Landlord insurance (online-driven) | $300 – $1,000 (small landlords, variable) |
| Nationwide / Farmers | DP-3 / landlord policies | $1,000 – $2,500 |
Sources and further reading on typical landlord/homeowner premium ranges:
- Bankrate: How much landlord insurance costs — https://www.bankrate.com/insurance/renters/landlord-insurance-cost/
- NerdWallet: Landlord insurance cost overview — https://www.nerdwallet.com/article/insurance/landlord-insurance-cost
- Insurance Information Institute (III): Homeowners insurance basics — https://www.iii.org/article/how-much-does-homeowners-insurance-cost
Local examples (estimates):
- Los Angeles, CA (higher rebuild & liability costs): plan for $1,500–$3,000+/yr for dwelling coverage with rental exposure; earthquake coverage is extra (CEA endorsements often add several hundred to thousands annually depending on limits and deductible).
- Austin, TX (rapid construction costs growth): $1,200–$2,200/yr depending on build value and flood zone.
- Miami, FL (wind/hurricane exposure + flood risk): $2,000–$5,000+/yr is common for combined wind/hurricane and property coverage; flood insurance (NFIP or private) is additional.
Important: these figures are estimates. Premiums depend on construction, deductible, claims history, and whether the rental is short-term or long-term.
Top carriers’ strengths for rental-exposed homeowners
- State Farm — broad agent network, good for owner-occupied properties adding an endorsement.
- Allstate — multiple landlord-specific products and optional endorsements.
- USAA — often lowest rates for eligible military households with strong claims service.
- Lemonade — affordable online landlord policies for smaller rentals; fast digital quoting.
- Erie and Amica — praised in regional customer service surveys for claims handling in certain states.
For bundling and discounts that reduce total cost (home + auto), see: Best Insurance For Homeowners to Bundle With Auto: Pros, Cons and Top Bundling Discounts.
Buying checklist: how to get the right policy
- Disclose rental use or ADU occupancy to your agent—don’t try to “sneak” it under a standard HO-3.
- Get quotes for both an HO-3 with endorsement and a DP-3 landlord policy.
- Ask about rental loss of income, tenant damage, and host protection for short-term rentals.
- Increase liability limits (consider umbrella).
- Buy flood (NFIP or private) if in a flood zone; buy earthquake coverage in CA, OR, WA.
- Compare insurer claim ratings and local adjuster responsiveness. See: Best Insurance For Homeowners Based on Insurer Claims Ratings and Customer Service.
Final recommendations
- If the ADU is rented long-term (annual lease), lean toward a DP-3 landlord policy tailored for rentals.
- If the ADU is incidental/occasional rental and you live on-site, an HO-3 with landlord/short-term rental endorsement may suffice.
- Always carry higher liability limits and consider an umbrella policy—this is the best protection for mixed-use homeowner landlords.
- Shop at least three carriers, and verify in writing that short-term rentals or ADU occupancy is covered.
For more on policy selection between broader HO-5 coverage options, see: Best Insurance For Homeowners: HO-3 vs HO-5 — Which Policy Fits Your Home?.
Sources
- Bankrate — Landlord insurance cost guide: https://www.bankrate.com/insurance/renters/landlord-insurance-cost/
- NerdWallet — Landlord insurance overview: https://www.nerdwallet.com/article/insurance/landlord-insurance-cost
- Insurance Information Institute (III) — Homeowners insurance basics: https://www.iii.org/article/how-much-does-homeowners-insurance-cost