The 6-8 weeks between an accepted offer and closing on a home can be a whirlwind of activity for you as a home buyer. There’s the inspection to go over and negotiate, water and septic inspections, appraisals, documents and more documents, unexpected fees that need to be covered at closing. Perhaps you don’t even think about insurance until the last minute, when your mortgage company reminds you. At that point, it might be tempting to quickly call around to a few insurance agents and blindly accept the lowest quote you receive.
If you happen to be buying is a mobile (i.e., “manufactured”) home, this could be a critical mistake on your part. Unlike insurance for stick built homes, there is very little degree of standardization among mobile home policies. Since you generally get what you pay for, if you take the lowest quote, you may be blissfully unaware of how inferior the coverage is that you selected.
So I repeat: Buyer Beware.
Issue Number One: How much coverage will apply to your dwelling? While it’s standard for stick-built home policies to insure your house for its estimated cost to rebuild (i.e., “Replacement Cost coverage), many mobile/manufactured home policies are written for “Actual Cash Value”, which means they insure the dwelling only for its current depreciated value. This means that if your home burned down, you’d have to go out and try to find another used mobile home in acceptable condition to move onto your property. Perhaps you’d find this level of coverage satisfactory and perhaps not, but it is important to know if that’s all the insurance you are buying.
This brings us to a second area of concern: Will you get paid enough to cover repairs after a smaller loss? Not if you purchase a Actual Cash Value policy. With Actual Cash Value coverage, the cost for covered repairs will be depreciated. As an example, let’s say a water line in your home breaks and it will cost $3000 to replace damaged flooring. Your insurance company assesses $900 in depreciation on top of your $500 deductible, paying only $1600 and leaving you to come up with $1400 for the new flooring. How happy will you be with this claim?
Actual Cash Value policies are virtually unheard of these days for stick-built primary residences, but they are quite common when insuring manufactured homes. Another point of caution is that some carriers sell policies that start out at Replacement Cost but then switch to Actual Cash Value after the home reaches a certain age – maybe 10 or 15 years old. While they disclose this coverage reduction in the renewal documents, I’m guessing many people either miss it entirely or don’t understand the how this change will affect them.
This is may be a good point to note that even with a true Replacement Cost policy, coverage on roofing shingles may be depreciated after the shingles reach a certain age (often 15 years old). While I don’t find this overly desirable for the average homeowner, it may be hard to find Replacement Cost coverage on your mobile home that doesn’t include this restriction.
Another area of concern comes to the amount and type of coverage for your personal property. Let’s say you are buying a 1200 square foot home. If only the home were stick built, it’s likely your policy would come with at least $100,000 in Replacement Cost Personal Property coverage. But the average policy for a 1200 square foot mobile home might only cover $10,000 to $30,000 for your personal property.
Also, if you aren’t careful, you could end up with Actual Cash Value Personal Property coverage on your manufactured home policy. This means any claim you file would be subject to depreciation. While some items such as jewelry or collectibles may actually increase in value over time, much of your personal property may be worth pennies on the dollar compared to what it will cost to repurchase it in the store. I can pretty much guarantee you that if don’t have Replacement Cost coverage for your personal property, you are going to be very disappointed and frustrated come claim time.
Another thing I often see in mobile home policies is very restrictive limits for certain types of personal property. For example, maybe the policy only covers up to $1500 for sporting equipment or only $2000 total for all electronics (including computers, TVs, cameras, mobile devices, etc.) While all Homeowners policies do limit some categories of items, the examples I just cited are much more extreme that anything you’re likely to find on a standard “stick-built” Homeowners policy. Worse yet, you’re not likely to even know about these limits, unless either read the full policy contract or are working with an agent who points them out.
It’s not that uncommon in the north country to see an older, dinky single wide mobile home with a huge beautiful shop right next to it. If you’re not careful, you could end up with only $5000 to $15,000 in coverage for that shop. Also, many manufatured home policies may deduct depreciation for any claims to the shop – in some cases even if you have Replacement Cost coverage on your dwelling!
These are not the only issues you may find in some mobile home policies, but they are certainly enough examples to highlight why it is important to be careful about what policy you buy for your mobile home. If you do choose to go with the lowest quote you receive, you should do so with the understanding that you may be receiving vastly inferior coverage to other options that might cost somewhat more.
One of the ways I try to provide better value as an agent is by sitting down with clients who are buying a new insurance policy and reviewing their options and highlights of the coverage which comes with the policy they are buying. I’d suggest that working with a professional, knowledgeable agent who will take the time to explain what you are buying is very important when you purchase coverage for your mobile home.
Ken Cobb is owner of Pine Country Insurance and has been active in the insurance industry for over 15 years. Meet Ken.
Coverage descriptions found in this blog are summaries provided for general educational purposes and cannot fully detail the terms, conditions, limitations or exclusions of a specific insurance policy. Please read your policy carefully.