Five Questions to Ask When Purchasing an Insurance Policy on your "Lonnie Deal"
by Derek Kartchner
"Lonnie Deals" have proven extremely profitable for many mobile home investors, but what happens when something goes wrong? How do you ensure that your interest, as well as the interests of the buyer are protected? The world of insurance can be confusing and complicated. As Lonnie said in Deals on Wheels, "Why is it that when an Insurance agent is trying to sell you a policy, it's the best policy in the world, but when you need to file a claim and collect, it's not worth the paper it's written on?" (page 146). To avoid this stated problem, there are several questions you should ask when it comes to insurance. I have listed five of the most important:
Q: Is the issuing insurance company A Rated? Many people confuse the insurance agent/broker with the insurance company. Although, you may know the agent at the corner store, they are not the one that will pay if there is a claim; it's the insurance company (underwriting entity). Ask your insurance agent what companies they represent and which company is underwriting your particular policy. Simply "good enough" does not exist in insurance. Make sure your investment is protected.
There are several large organizations that dedicate themselves to monitoring and rating the insurance industry. Organizations such as the A.M. Best Company, specialize in reviewing financial documents of insurance companies. Based on the short and long-term financial condition of the company (its ability to pay claims and service its clients) they will issue a rating, "A++" being the highest. Make sure the company issuing the policy does not have a rating lower than an "A-". You or your buyer may save a couple of bucks in the short-term by purchasing from a poorly rated company, but those few dollars are not worth the headache if you experience a claim. When insuring your Mobile Home it pays to go with a company that is well known in the industry, such as Foremost or American Modern.
Remember get an A!
Q: Does the issuing company offer specialized MOBILE HOME products? As we all know, mobile homes are different that standard stick built homes, and are vulnerable to a different set of risks and problems due to construction and mobile home park set-ups. Unfortunately, many insurance companies clump mobile homes in the same category as stick built homes, and by doing this they are not really doing anyone any favors. There is specialized insurance coverage's that meets the special needs of Mobile homes. Again, it pays to go with a company well known in the Mobile Home industry such as Foremost, American Modern or American Reliable.
Remember get Specialized!
Q: What risks are covered under the comprehensive coverage and what is the deductible? All insurance policies differ; some companies automatically include coverage for Flood and Earthquake, others don't. Some exclude wind and hail. NOT ALL POLICIES ARE CREATED EQUALLY! Make sure that you are aware of the risks that your home will be exposed to, and be sure that the insurance policy covers those risks. Furthermore, be sure to know if there are any special deductibles (the initial portion of a covered expense that must be paid by you, the insured). Many companies will have a standard deductible for the majority of risks, but will increase the deductible on special coverage such as flood, earthquake, mold, and other special risks.
Remember to be aware of the Coverage and the Deductibles!
Your main concern will be to insure the actual mobile home, but there are several other pieces that should be taken into consideration.
Q: Is there coverage for additional living expenses, personal property, and debris removal? Let's assume the buyer has a fire, although it's not necessarily your responsibility; what will the buyer do? Where will they go, and how will they pay for it? How will they replace the contents of their home? Insurance companies may provide coverage that will cover additional living expenses in the case of a covered claim. In other words, the company will assist in payment for the policyholder's increased cost of living due to the claim, hotel expenses, etc. Remember this is to assist in payment and not pay for, so don't expect to be put up in the Ritz-Carlton! Look at the terms and conditions for the amount of assistance the company will provide and their limitations and exclusions.
Furthermore, the insurance company may provide coverage for the contents of the mobile home, which protects the buyer from having to pay for to replace all their possessions out of their pocket.
What about you? If you own the land, you now have all the debris from the fire on your lot. How are you going to remove it? Who will pay for it? Make sure an insurance company does, by ensuring the policy has debris removal coverage. These are common coverages, but make sure your policy has them.
Remember Additional Living Expenses, Personal Property Coverage, and Debris Removal coverage!
Q: Does the company offer replacement cost coverage or will they settle a claim based on the agreed or stated value of the home? In the fine print of your insurance policy, insurance companies explain they will pay your claim, but often they explain that they will only do it based on the Actual Cash Value (ACV) of home. ACV means the current real value of the home, and often you are left at the mercy of the insurance company's opinion. In other words, although you may insure a home for $10,000, and pay the corresponding premium, if the actual value of the home is $7,000 the company reserves the right to only pay the $7,000 as the settlement.
To protect yourself from this, make sure that the policy purchased includes replacement cost or an agreed or stated value clause. Replacement cost will pay for a new home of like size and quality to be put in the place of the previous home. Unfortunately, there are limitations to the age and value of the home that qualify for this coverage. However, if you do not qualify for replacement cost coverage, ask your agent about an agreed or stated value clause. This means that regardless of the actual cash value of the home, the company will settle a claim based on the amount that you insured it for (i.e. $10,000 = $10,000). An agreed value or stated value clause will ensure that you get the money you actually insured your mobile home for.
On a side note, underinsuring a mobile home can have drastic ramifications and can cost everyone involved. Unfortunately, it's more common than you might think.
Remember the key to getting what you paid for is agreed value!
Of course this isn't a comprehensive insurance checklist, but asking these questions will help protect you from getting burned. The best way to know what is covered and up to how much, is to read the terms and conditions of your policy. It may be painful, but at least you know what you are buying. If you are investing in multiple states, know that coverage and programs vary from state to state, even with the same insurance company. The right insurance agent can be a tremendous help in avoiding these pit falls, aiding your understanding of available coverage, and ensuring that your "cash cows" are properly protected. Regardless of what agent you use, find an agent that is easy to easy to work with, understands the "Lonnie Deal" specializes in mobile home insurance, and be sure to ask the right questions!
About the author...
Derek Kartchner is the Sales Manager for MH Insurance Professionals. MH Insurance Professionals specializes in individual Manufactured/Mobile home insurance. He can be reached at 1-877-784-6787, at info@mhinsurancepro.com, or on the web at www.mhinsurancepro.com.
