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Insurance for in-law apartments

It's a little home within a home, but whether an in-law apartment is covered under a current homeowners policy is a tricky issue. What defines an in-law apartment from a separate dwelling within a house depends on which insurance company you ask. The answer dictates whether a renters policy is needed in addition to a homeowners policy.

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If the apartment is deemed separate — a decidedly subjective opinion — the structure will usually be covered under the homeowners policy, but the contents may not.

A typical in-law apartment is attached to or built inside another home. Many have appliances and dedicated bathrooms. Some have separate entrances. For some insurance companies, the separate entrance is key.

Sue Honeyman, spokesperson for The Hartford, says if the apartment has its own utilities and a separate entrance, it is considered another living unit. The house is then judged as a two-family dwelling. As such, the structure is covered under the homeowners policy. The contents, however, are not. In this case, the occupant of the in-law apartment must have renters insurance to cover the contents and his or her liability.

"If it's an outside entrance, you're a landlord even if it's a relative [living there]," Honeyman says.

For Chubb Group of Insurance Cos., the answer is not quite as simple. A separate entrance and separate utilities alone do not a separate dwelling make, says Noel Hannon, a market analyst for New Jersey-based Chubb. Chubb tends to lean more toward counting an in-law apartment as part of the main dwelling.

"We have a tendency to be broader in that area," Hannon says. "Assuming it is all a part of one dwelling, it is covered under the homeowners coverage. If the occupant is a family member, any of the furnishings and contents would also be under the main homeowners policy and so would the liability. When you start getting into a true, separate egress, a true, separate apartment, that's when it becomes more and more complicated."

If the apartment is deemed separate — a decidedly subjective opinion — the structure usually will be covered under the homeowners policy, but the contents may not. In this case, the in-law apartment is considered a separate dwelling and anyone living there needs renters insurance.

What if an in-law apartment is seen as a seperate dwelling, but the contents belong to the owner of the main house?

According to Doreen Vaughan, product compliance manager for Nationwide Insurance, homeowners policies cover any relatives living in the household. By that rule, parents living in an in-law apartment, and their possessions, would be covered.

But, does the "household" include an in-law apartment? Vaughan says factors that help decide this question include whether the person living in such an apartments is a relative, whether they are paying for the space, and if the space has its own address.

What if an in-law apartment is seen as a separate dwelling, but the contents belong to the owner of the main home? Perhaps the homeowner has set up a nice couch, microwave, and 18-jet hot tub for dad's comfort. While very considerate, these amenities, according to Honeyman of The Hartford, are covered only up to $2,500. This sum includes things such as carpeting and appliances.

So, we have several different answers as to whether an in-law apartment is part of the main dwelling and, thus, covered under a homeowners policy. What's a son- or daughter-in-law to do? Call your insurance agent to see just what your insurer requires to cover an in-law apartment. If it is decided that the area will be covered under an existing homeowners policy, be sure you have enough coverage for the additional space and its contents.

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