What Insurance Settlement Option Should I Select For My Mobile Home?

Buying insurance for your home, auto, or other property can be a confusing or frustrating experience. While manufactured homes represent nearly 10% of all single-family homes in the US, mobile home insurance remains a specialty product commonly ignored or poorly supported by major brand-name insurance companies.

When major carriers offer manufactured home insurance, they often provide less-than-ideal scope and settlement options and offer limited support at the time of purchase to ensure their customers are fully covered. Fortunately, for owners of mobile and manufactured homes, there are insurance agencies that focus on understanding each mobile homeowner’s unique risk profile. These agencies offer coverage from best-in-class insurance carriers and take adequate time to educate customers so they can make informed buying decisions.

There are many things to consider when buying a mobile home insurance policy. Ranging from price, coverage limits, and riders, to the financial strength of the insurer. An often overlooked, frequently misunderstood, important part of the policy is the settlement option for a covered loss of the home or dwelling. Many people believe the listed Coverage A dollar value on their insurance policy (i.e., coverage for damage to the home or dwelling) is what their insurance carrier will pay in the event of a total loss, but this is not always the case. The listed Coverage A dollar value is the limit to which the carrier will pay in the event of a covered loss of the home or dwelling. Depending on the policy’s settlement option, the actual payout may be significantly less than the stated Coverage A limit due to depreciation, overvaluation of the property at the time the policy was written, etc.

To ensure your mobile home is properly and fully covered, it’s important to consider the different settlement options available.

Replacement Cost:

If your policy has a Coverage A replacement cost settlement option, then, in the event of a covered total loss, the insurance carrier will provide the funds required to replace your mobile home. This refers to a mobile home of like kind and quality up to the Coverage A limit. Which effectively means that the home is replaced with a brand-new home of the same likeness and quality.

Example:
Jane Doe buys a new mobile home in 2015 for $125,000 and she selects a replacement cost settlement option for her insurance policy with a Coverage A limit of $125,000. In 2022, Jane loses her home to a fire covered by her insurance policy. Her home’s fair market value is $80,000. Since Jane selected a replacement cost settlement option for her home, Jane’s insurance company provides the funds necessary to replace her home with a brand-new home for up to $125,000. 

In addition to the basic Coverage A settlement options listed above, there are numerous riders offeredby carriers that allow owners of mobile homes to enhance or amend their selected Coverage A loss settlement option.

Actual Cash Value

If a policy has a Coverage A actual cash value settlement option, then, in the event of a covered total loss, the carrier will provide funds required to replace your home at the current fair market value (i.e., replacement cost minus depreciation) up to the Coverage A limit. This effectively means that your home will be replaced with a used home of the same likeness and quality.

Example:
Jane Doe buys a new mobile home in 2015 for $125,000 and she selects an actual cash value settlement option for her insurance policy with a Coverage A limit of $125,000. In 2022, Jane lost her home to a fire covered by her insurance policy. Her home’s fair market value is $80,000. Since Jane selected the actual cash value settlement option for her home, Jane’s insurance company provides the funds necessary to replace her home up to its fair market value of $80,000.

Stated Value

If your policy has a Coverage A stated value settlement option, in the event of a covered total loss, the carrier provides the lesser of the funds required to replace your home with one of like kind and quality or the stated value as listed on your policy. 

Example:
Jane Doe bought a new mobile home in 2015 for $125,000. She selected a stated value settlement option for her insurance policy with a Coverage A limit of $100,000. In 2022, Jane lost her home to a fire that is covered by her insurance policy. Her home’s fair market value is $80,000. Since Jane selected a stated value settlement option for her home, Jane’s insurance company provides the funds necessary to replace her home with a new home for up to $100,000. 

Agreed Value

If your policy has a Coverage A agreed value settlement option, then, in the event of a covered total loss, the insurance carrier provides the funds required to meet the agreed value as stated in the policy. This settlement option does not account for the replacement cost or the fair market value and instead settles covered total loss claims based on a previously agreed-upon value. 

Example:
Jane Doe bought a new mobile home in 2015 for $125,000 and selected an agreed value settlement option for her insurance policy with a Coverage A limit of $115,000. In 2022, Jane lost her home to a fire covered by her insurance policy. The fair market value is $80,000. Since Jane selected an agreed value settlement option for her home, the insurance company provided her with $115,000.

Actual Cash Value with Replacement Cost on Partial Loss

If your policy has an actual cash value settlement option for Coverage A, and if you experience a covered partial loss (i.e., your home is damaged but is repairable), your carrier depreciates the damaged portion of the property before paying the settlement. For this reason, the settlement payout for incurred damages will leave you to foot the difference between the cost to purchase new materials (e.g., lumber, siding, drywall, insulation, cabinets, etc.) and the depreciated value assigned by the claims adjuster to materials damaged by the covered loss. The replacement cost on partial loss rider allows the customers to select an actual cash value settlement option in the event of a total loss while simultaneously selecting a replacement cost settlement option for covered partial losses.

Example 1:
Jane Doe buys a new mobile home in 2015 for $125,000 and selects an actual cash value settlement option with a Coverage A limit of $125,000. She is concerned that if experiencing a covered partial loss, she will not have enough money to restore her house to its previous condition, so she adds a replacement cost on partial loss rider to her policy.

Total Loss: Jane’s home gets destroyed by a covered weather event. The claims adjuster deems it a total loss. The fair market value at the time of the loss is determined to be $80,000. Her insurance carrier pays out $80,000.

Partial Loss: Jane’s home gets damaged by a covered weather event. The home withstands significant damage but is repairable. Outside of labor, the cost to acquire new materials to fix the damage is $25,000. Since Jane added the replacement cost on partial loss rider to her policy, her insurance carrier pays out the entire repair claim, including the $25,000 to replace the damaged old materials with new materials.