Is Your Guest House Properly Insured?
By: Elena Majorian
Guest houses, pool houses, detached garages, barns, workshops, studios, and other outbuildings can represent a significant investment and may have a very different insurance profile than the main home.
Homeowners often assume that if the main residence is adequately insured, everything on the property is automatically covered. While there is some coverage coming from “other structures” , this is often a set percentage of the dwelling value and may not be sufficient. Additionally, the location, construction, use, occupancy, and value of a detached structure can all affect how coverage from the homeowners policy applies.
Property Coverage: How Much Is Enough?
A simple detached garage used exclusively for parking may present a very different risk than a fully furnished guest house with a kitchen, bedrooms, and a separate HVAC system. Conversely, a pool house may include expensive cabinetry, appliances, entertainment systems, furnishings, and other finishes that can make the cost to rebuild substantially higher than homeowners realize.
To determine the appropriate coverage needed, let your insurance advisor know what structures exist on the property, how they are used, and what contents are inside. Think about whether the policy provides enough coverage to rebuild your detached structure in the event of a covered loss. It is important to consider the replacement cost of the structure, not its market value.
A guest house might have a relatively low market value when considered separately from the overall property, but the cost to rebuild it could be substantial because of custom construction and current labor and material costs.
To find the replacement cost, homeowners should think about:
• Square footage and construction type
• Custom or high-end finishes
• Kitchens and bathrooms
• HVAC and mechanical systems
• Roofing and exterior materials
• Built-in appliances and fixtures
• Special features such as fireplaces, stonework, or custom windows
What About the Contents Inside?
Another consideration is the property contained within the detached structure.
A guest house may be fully furnished with artwork, electronics, furniture, linens, appliances, and other personal property. A pool house could contain expensive outdoor equipment or entertainment systems. A detached office or studio might have computers, specialized equipment, or valuable collections.
The existing homeowners policy should be reviewed to determine how coverage relates to these items and whether any special limits or exclusions apply. For high-value items, it might be appropriate to schedule certain property.
How Flood Coverage Applies to Detached Structures
Homeowners insurance policies will almost always exclude flood damage. In most cases, a separate flood insurance policy is needed to provide coverage against floods; however, the detached structure may not qualify for coverage on the same policy as the home depending on the structure’s use or the carrier’s guideline. You may need to issue a second policy for the detached structure only.
Guest Houses Deserve Special Attention
Guest houses are particularly important because they can function more like a second residence than a traditional other structure.
A guest house may have:
• A full kitchen
• Bedrooms and bathrooms
• Separate utilities
• Its own HVAC system
• Furnishings
• Entertainment systems
A structure that is regularly rented or occupied will likely have different insurance concerns than one used only occasionally by family and guests. This will change the risk exposure, and it is important to ensure you have proper liability protection in place. It is always best to review your policy with your insurance professional to ensure that your structures are properly covered.