Will a Garage Conversion Affect My Homeowner's Insurance?
Yes, a garage conversion will affect your homeowner's insurance. Converting a garage into living space increases your home's replacement cost, which raises your dwelling coverage and your premium. Expect a 5-15% increase for basic conversions and 10-25% for full ADU conversions. If you plan to rent the unit, you will need a landlord insurance policy or rental dwelling endorsement. During construction, a builder's risk or builders renovation policy protects the project from damage.
Will a garage conversion affect my homeowner's insurance?
Yes. A garage conversion increases your home's livable square footage and replacement cost, which raises your dwelling coverage requirement and your premium. Basic conversions (home office, bedroom) typically increase premiums by 5-15%. Full ADU conversions with kitchen and bathroom can raise premiums 10-25%. If you rent the converted space, you need landlord insurance or a rental endorsement. Notify your insurer before construction begins, and again after the project is complete.
The Short Answer: Yes, Your Insurance Will Change
A garage conversion affects your homeowner’s insurance in several ways. You are transforming an unfinished utility space into livable square footage, which changes your home’s replacement cost, its risk profile, and the coverage your insurer needs to provide. Every homeowner planning a garage conversion should factor insurance changes into the project budget from the beginning.
The good news: insurance costs for a garage conversion are manageable, typically adding a few hundred dollars per year to your premium. But the process requires proactive communication with your insurance company at three stages. Before construction, during the build, and after the project is complete.
This guide breaks down exactly how a garage conversion affects your insurance, what coverage you need, how much premiums increase, and what changes when you plan to rent the converted space.
Why a Garage Conversion Changes Your Insurance
Insurance companies calculate your homeowner’s premium based on the cost to rebuild your home after a total loss. When you convert a garage into living space, several factors shift that calculation.
Increased Replacement Cost
A garage is classified as unfinished or semi-finished space. Your insurer values it at a lower per-square-foot rate than the rest of your home. Once you add insulation, drywall, flooring, HVAC, electrical upgrades, and fixtures, the replacement cost of that space increases significantly. A converted two-car garage with a full kitchen and bathroom costs far more to rebuild than a bare concrete-and-stud shell.
Change in Use Classification
Insurers categorize space by its intended use. A garage used for vehicle storage carries different risk assumptions than a bedroom, home office, or rental apartment. Living spaces have more contents to insure, higher fire exposure from cooking appliances, and greater liability potential from occupants and guests.
Additional Systems and Fixtures
Plumbing, dedicated HVAC systems, water heaters, kitchen appliances, and bathroom fixtures all add to the insurable value of the structure. These components are expensive to replace, and each one increases your coverage requirements.
How Much Will Your Premium Increase?
The exact increase depends on your insurer, your location, the scope of the conversion, and the current value of your home. However, here are the general ranges California homeowners can expect.
| Conversion Type | Estimated Premium Increase | Why |
|---|---|---|
| Home Office / Studio | 5-10% | Modest increase in replacement cost; no plumbing added |
| Bedroom (No Bathroom) | 5-12% | Added finished square footage; limited fixtures |
| Guest Suite (With Bathroom) | 8-18% | Plumbing, fixtures, and increased replacement cost |
| Full ADU (Kitchen + Bathroom) | 10-25% | Major replacement cost increase; may require policy restructuring |
| Rental ADU | 15-30%+ | Requires landlord policy or endorsement; liability considerations |
For context, the average California homeowner’s insurance premium runs between $1,300 and $2,000 per year as of 2026. A 10-15% increase translates to roughly $130-$300 more per year. For a rental ADU generating $2,000-$3,500 per month in the Bay Area, this is a modest operating cost.
Keep in mind that California’s insurance market is under significant pressure heading into 2026. Statewide premium increases of 17-35% have been approved or proposed by major carriers due to wildfire losses and rising reinsurance costs. Your garage conversion increase will layer on top of any market-wide rate adjustments.
What to Tell Your Insurance Company (and When)
Communicating with your insurer at the right stages is the single most important step you can take. Failing to disclose a conversion can result in denied claims, coverage gaps, or policy cancellation.
Before Construction Begins
Contact your insurance agent before the first day of demolition. Let them know the scope of the project, including the type of conversion, whether plumbing will be added, and the estimated construction cost. Your insurer may recommend or require a builder’s risk policy for the construction period. This is also the time to ask about any exclusions or limitations your current policy has for renovation projects.
During Construction
If your contractor carries their own liability and worker’s compensation insurance (as all licensed California contractors should), ask them to provide a certificate of insurance naming you as an “additional insured.” This protects you from liability for jobsite injuries and contractor-caused property damage during the build. If you are financing the conversion through a construction or renovation loan, your lender will likely require a Course of Construction policy as well.
After the Project Is Complete
Once the conversion passes its final building inspection, notify your insurer again. Provide them with the permit documentation, the certificate of occupancy (if applicable), and details about the finished space. Your agent will update your dwelling coverage to reflect the new replacement cost. If you plan to rent the space, this is when you should discuss a landlord endorsement or separate landlord policy.
Builder’s Risk Insurance During Construction
Standard homeowner’s policies are not designed to cover renovation projects. If a fire, storm, theft, or vandalism damages your garage conversion mid-construction, your regular homeowner’s policy may deny the claim because the space was under active renovation.
Two Policy Options
Builder’s Risk Insurance. A standalone policy that covers the structure, materials, and equipment during construction. It is typically required for larger projects and construction loans. Cost ranges from 1-4% of the total project value. For a Bay Area garage conversion costing $120,000-$200,000, that translates to $1,200-$8,000 for the policy.
Builders Renovation Policy. A more affordable option designed for smaller-scale renovations that do not involve new construction from the ground up. This is often the better fit for straightforward garage conversions. A typical builders renovation policy costs $500-$1,500 for a six-month term, which is sufficient for most garage conversion timelines.
What Builder’s Risk Covers
- Fire, wind, hail, and lightning damage to the project
- Theft of materials and fixtures stored on-site
- Vandalism during construction
- Water damage from burst pipes or storm intrusion
What It Does Not Cover
- Your contractor’s tools and equipment (covered by the contractor’s own policy)
- Worker injuries (covered by the contractor’s worker’s compensation insurance)
- Design or workmanship defects
- Pre-existing damage to the garage structure
California-Specific Considerations
California builder’s risk premiums can be higher than the national average due to wildfire risk, seismic exposure, and elevated construction costs. If your property is in a high fire severity zone, your builder’s risk premium will reflect that risk. Earthquake coverage is typically excluded from standard builder’s risk policies and must be purchased separately if desired.
Insurance for Rental Garage Conversions
If you plan to rent your converted garage as an ADU, your insurance requirements change substantially. A standard homeowner’s policy is designed for owner-occupied residences, not for properties that generate rental income.
Landlord Insurance vs. Homeowner’s Insurance
Renting a unit to non-family members introduces risks that your homeowner’s policy was never designed to cover. Landlord insurance (also called a rental dwelling policy) includes three key protections that standard homeowner’s policies do not.
Property damage from tenants. Standard homeowner’s policies exclude damage caused by tenants. Landlord policies cover this explicitly.
Loss of rental income. If a covered event (fire, storm, water damage) makes your rental unit uninhabitable, a landlord policy reimburses lost rent during the repair period. For a Bay Area ADU renting at $2,500 per month, this coverage is significant.
Landlord liability. If a tenant or their guest is injured on your property and sues, landlord liability coverage pays for legal defense and any settlement or judgment. California law does not mandate a specific liability minimum for ADU landlords, but most insurance professionals recommend at least $300,000 to $500,000 in liability coverage.
Coverage Options for ADU Landlords
You have two main paths, depending on your property and insurer.
Landlord endorsement on your existing policy. Some insurers will add a rental dwelling endorsement to your homeowner’s policy if the ADU is on the same property. This is usually the simplest and most affordable option for attached garage conversions.
Separate landlord policy. If your insurer does not offer an endorsement, or if the conversion is in a detached structure, you may need a standalone landlord policy. This adds more administrative overhead but can provide more tailored coverage.
Short-Term Rental Insurance
If you plan to list your converted space on Airbnb, VRBO, or another short-term rental platform, standard homeowner’s and landlord policies typically exclude short-term rental activity. You will need a specialized short-term rental insurance policy or a host protection endorsement. Some California cities, including Los Angeles, now require hosts to carry at least $1 million in liability insurance for short-term rentals.
Liability Considerations for Converted Spaces
Beyond property damage coverage, liability is a critical insurance consideration for any garage conversion, whether you use the space yourself or rent it.
For Owner-Occupied Conversions
Your existing homeowner’s liability coverage extends to the converted space as part of your primary residence. If a guest is injured in your converted home office or guest suite, your homeowner’s liability policy responds the same way it would for any other part of your home. However, make sure your liability limit is adequate. Most insurance professionals recommend at least $300,000 in personal liability coverage, with an umbrella policy for additional protection.
For Rental Conversions
Landlord liability is a separate and more complex issue. As a landlord, you have a legal duty to maintain the rental unit in a habitable condition. If a tenant is injured due to a maintenance failure (a faulty water heater, a tripping hazard, a broken handrail), you can be held liable. Landlord insurance provides dedicated liability coverage for these scenarios, separate from your personal homeowner’s liability.
Umbrella Policies
If you are renting a converted garage as an ADU, consider adding an umbrella insurance policy. An umbrella policy provides $1 million or more in additional liability coverage above and beyond your homeowner’s and landlord policies. The typical cost is $200-$400 per year for $1 million in coverage, making it one of the most cost-effective ways to protect your assets.
What Happens If You Do Not Update Your Insurance
Some homeowners skip the insurance notification step, either because they do not realize it is required or because they want to avoid a premium increase. This is a significant risk.
Denied claims. If a fire or other loss damages your converted space and your insurer discovers the undisclosed renovation, they can deny the claim. You would be responsible for the full cost of repairs or rebuilding out of pocket.
Coverage gaps. Your current dwelling coverage limit was set based on your home before the conversion. If a total loss occurs, the insurance payout may fall short of the actual replacement cost by tens of thousands of dollars.
Policy cancellation. Undisclosed material changes to your property can be grounds for policy cancellation. In California’s current insurance market, where many carriers are reducing their exposure, losing your policy could make it difficult and expensive to find new coverage.
The premium increase for a garage conversion is modest compared to these risks. Keeping your insurer informed protects your investment.
Frequently Asked Questions
Does my homeowner’s insurance cover the garage conversion during construction?
Typically, no. Standard homeowner’s policies are not designed to cover active construction projects. Most policies exclude damage that occurs during renovation or limit coverage for structures under construction. A builder’s risk or builders renovation policy fills this gap. Your contractor should also carry their own general liability and worker’s compensation insurance, and you should request a certificate of insurance naming you as an additional insured.
Will a permitted conversion affect my insurance differently than an unpermitted one?
Most insurers will cover the structure regardless of permit status when adding it to your policy. However, unpermitted work creates other risks. Some insurers may exclude coverage for damage that results directly from code-noncompliant construction. Additionally, unpermitted work can lead to fines, complications at resale, and difficulty obtaining future coverage. A permitted, inspected conversion is always the safer path for insurance and overall property value.
Can my insurance company drop me for converting my garage?
In general, no. Insurers do not drop policyholders simply for making home improvements. However, in California’s current insurance environment, some carriers are reducing their overall exposure and may non-renew policies for other reasons. By notifying your insurer proactively and maintaining proper coverage, you protect yourself from unexpected policy cancellations.
How Custom Home Protects Your Investment
At Custom Home (CSLB #986048), our two-phase design-build process addresses insurance considerations from the start. During Phase 1, we help you understand the full scope of the project, including insurance implications, before any construction begins. Our team carries full general liability and worker’s compensation insurance, and we provide certificates of insurance naming you as an additional insured.
We work exclusively with licensed subcontractors who carry their own insurance, creating multiple layers of protection during construction. Because our Phase 1 process locks in the complete project scope and price before construction starts, you can provide your insurance agent with accurate project details upfront, ensuring the right coverage is in place from day one.
Next Steps
Insurance is one of the most overlooked aspects of a garage conversion, but getting it right is straightforward. Notify your insurer before you start, carry the right coverage during construction, and update your policy when the project is complete. If you are building a rental ADU, invest in landlord insurance or a rental endorsement to protect your rental income stream.
For more information on garage conversion planning, see our California garage conversion cost guide, garage conversion rental unit guide, and permit requirements guide.
Ready to plan your garage conversion with confidence? Contact Custom Home for a consultation. We will walk you through the full process, including the insurance steps, so you know exactly what to expect before you commit.
Frequently Asked Questions
Do I need to tell my insurance company about a garage conversion?
Yes. You should notify your insurance company before construction begins and again once the project is complete. Failing to disclose a garage conversion can result in a denied claim if damage occurs. Your insurer needs to update your dwelling coverage to reflect the new replacement cost. Without notification, any claim involving the converted space could be rejected entirely.
Does a garage conversion ADU need its own separate insurance policy?
It depends on the structure. If your garage conversion is attached to your primary home, it is typically covered under your existing homeowner's policy once your dwelling coverage is updated. If you are renting the space, you will need to add a landlord endorsement or purchase a separate landlord policy. Detached garage conversions may require a separate policy or increased 'other structures' coverage depending on your insurer.
How much does builder's risk insurance cost for a garage conversion?
Builder's risk insurance typically costs 1-4% of the total project value. For a garage conversion costing $80,000-$200,000 in the Bay Area, expect to pay $800-$8,000 for a policy lasting the duration of construction. A builders renovation policy, which covers simpler conversion projects, often costs $500-$1,500 for a six-month term.
Will my insurance cover a garage conversion if I did not get a permit?
Most insurance companies will cover the structure regardless of permit status, but working without permits creates other serious risks. Some insurers may deny claims if they discover unpermitted work that contributed to the damage. Additionally, unpermitted conversions create major complications at resale and can result in fines up to $500 per day in California.