Brooklyn Homeowners: Your ADU Conversion Could Leave You Dangerously Underinsured in 2024

With New York City’s groundbreaking ADU legalization initiative taking effect in 2024, Brooklyn homeowners are rushing to convert basements and garages into accessory dwelling units. However, many are discovering a costly oversight: their existing homeowners insurance policies may not adequately cover these valuable additions.

The New Brooklyn ADU Landscape

In December 2024, New York City enacted Local Laws 126 and 127 alongside the City of Yes for Housing Opportunity zoning text amendment — a major step toward making ADUs (Accessory Dwelling Units) possible in one- and two-family homes. These changes open the door for homeowners to safely add new housing in attics, basements, cellars, garages, or detached backyard structures, expanding flexibility for multigenerational living or rental income.

As of 2026, the city now permits various types of ADUs, including basement conversions, garage apartments, and detached accessory structures in qualifying residential zones. According to the NYC Department of Buildings, the updated regulations aim to add tens of thousands of legal housing units across the city while providing homeowners with significant income-generating opportunities.

The Insurance Coverage Gap

The excitement around ADU conversions often overshadows a critical consideration: insurance coverage. Most people believe their existing homeowner’s insurance policy will cover their new ADU or garage conversion. Unfortunately, this usually isn’t the case.

Even if there is some level of coverage for “separate structures” like an ADU, the amount insured is usually much lower than you need for a full accessory dwelling unit. This coverage gap can leave homeowners financially vulnerable if damage occurs to their newly converted space.

Coverage Considerations for Different ADU Types

Basement Apartment Conversions

If your ADU is used for family (such as housing a relative in a basement or garage conversion), it may be covered under your existing homeowners policy. The reason is that this type of ADU is typically considered part of your home’s main dwelling and therefore, can be covered under your existing policy, especially if used by family members.

However, Brooklyn’s flood risk adds complexity to basement conversions. Certain natural disasters, such as floods and earthquakes, are typically not covered under standard homeowners insurance policies. If your ADU is located in an area prone to these risks, you may need to purchase separate flood or earthquake insurance policies.

Garage Conversions

Some insurance companies will not insure a garage conversion with second-story addition; in this case, your insurance agent will have to find you a different insurer. This highlights the importance of consulting with your insurance provider before beginning construction.

You can create this ADU by converting your existing garage — whether it’s attached to your home or a separate structure — into a living space. This approach can also include adding a second story to your existing garage, maximizing the use of vertical space.

Essential Coverage Types for Brooklyn ADUs

During Construction

You should strongly consider taking out a Course of Construction insurance policy when building your ADU. This policy protects the project from a variety of potential risks during the construction phase, including fire, smoke damage, vandalism, and theft. A Course of Construction policy generally costs between $500 and $1,500 for a six-month term, which should be enough to cover most ADU construction timelines.

Post-Construction Coverage

Once your Accessory Dwelling Unit is complete, you’ll need to contact your homeowner’s insurance agent and ask that this structure be added to your policy. They will either increase the amount of your ‘separate structures’ coverage or add another policy to your account to cover the ADU.

Key coverage areas include:

• Dwelling coverage: This part of your homeowners insurance policy typically covers the physical structure of your ADU against damage from insured events such as fire, storms, theft, and vandalism. It’s important to ensure that the coverage limit for dwelling insurance is high enough to cover the cost of rebuilding your ADU in case of total loss.
• Liability protection: Liability protection is an essential part of homeowners insurance that can extend to your ADU. It protects you if someone gets injured on your ADU property or you’re found liable for property damage.
• Rental income coverage: If you rent the ADU, consider coverage for lost rental income due to damage or repairs.

Special Considerations for Rental ADUs

In many cases, ADUs require insurance coverage beyond what is typically provided by a standard homeowners policy, especially when used as long-term rentals. Renting out an ADU often necessitates landlord or rental property insurance to protect against tenant-related risks, property damage, and liability.

ADUs increase your property’s value, which may require higher insurance coverage. ADUs introduce new risks, such as tenant damage or liability.

Working with Brooklyn Insurance Professionals

Given the complexity of ADU insurance coverage, Brooklyn homeowners benefit from working with experienced local insurance professionals who understand the unique challenges of the borough’s housing market. When seeking brooklyn property insurance, it’s essential to partner with an agency that has deep roots in the community and extensive experience with property conversions.

Max J. Pollack & Sons Insurance, a family-owned business serving Brooklyn since 1936, exemplifies this local expertise. Today, we serve clients throughout the entire greater New York City area from our office in Park Slope, Brooklyn. We are a family business that has been serving the New York Metropolitan community for over 75 years. Their long-standing presence in the community provides them with intimate knowledge of Brooklyn’s evolving housing landscape and insurance needs.

Taking Action Before Construction Begins

Before building or insuring an ADU, consult with your insurance provider to determine the best course of action for your specific situation. This proactive approach can prevent costly coverage gaps and ensure your investment is properly protected.

Key steps include:

• Reviewing your current homeowners policy limits
• Discussing ADU-specific coverage needs with your agent
• Understanding local flood and earthquake risks
• Planning for construction-phase insurance requirements
• Considering liability implications of rental use

As Brooklyn continues to embrace ADU development as a solution to housing challenges, homeowners who take a comprehensive approach to insurance coverage will be best positioned to protect their investments and enjoy the benefits of their converted spaces with confidence.