For the last 5 years I have been an insurance agent for Manufactured Home Insurance Professionals
(www.mhinsurancepro.com). During this time,
I have talked to many manufactured home owners and agents about insurance, and I have developed some opinions.
I think you may find them funny and insightful, so I will share them and hopefully we can learn something.
I think, and I may be wrong, when it comes to the insurance part of disaster planning, most people are the
same. We know we need insurance, or we are told by a mortgage or finance company that we need it, so
we buy it. But dang it, the odds are against me ever using it, and “it will never happen to me anyway.” So
we try our darnedest to see through the insurance agent’s sales pitch and dodge the add-ons to get the
cheapest rate. Then the ___________ (fill in your own disaster) happens. We run to that unopened
envelope in a filing cabinet somewhere (supposing it hasn’t blown away or burned), tear it open, go
straight to the exclusions, look for whatever happened, don’t see it, and start jumping up and down
screaming it’s covered! It’s covered!
Or even worse, we start defining the terms of the policy as we think they should be. “Well, I think it should
be covered, so it is.” Or, “I paid $1,000 for this policy, it ought to be covered.”
Fortunately and unfortunately, the lawyers and insurance companies have spent years going round and
round about what the policy means when it says X and what is covered and what is not covered. So what
you think, or what “ought to be,” is irrelevant.
As Lonnie Scruggs asks 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). My guess is that it has to do with the mind set I have described above.
I’ll call it the “Should vs. Is” syndrome. This syndrome basically focuses on the gap of Expectation vs.
So allow me to play doctor for a second and scribble something illegible on a prescription pad. OK, here
you go. Make your expectation meet reality. Eliminate surprises. Knowing what to expect in the event of a
disaster is key. What will your insurance do? What will it not do? What is covered? How much is covered?
And most important, what NEEDS to be covered? What perils are important or should be important to
you? I live in Arizona; I don’t give a flying leap about whether my policy covers hurricanes until California
falls into the ocean. But, maybe, and I know it’s painful, just maybe you should read your policy and talk
to your agent or broker about the gaps that jump out at you. Insurance is not that difficult to understand.
For now, the following discussion of the “Should vs. Is” syndrome will focus on Manufactured Home
Insurance, although the concepts can also apply to stick built homes, so read on.
There are several hang-ups that every policyholder should be aware of in order to close the gap of
Expectation vs. Reality, and avoid the “Should vs. Is” syndrome.
- Valuation of the Home
- Replacement Cost vs. Stated vs. Actual Cash Value
- Replacement Cost for Partial Losses
- Replacement Cost for Contents
Valuation of the Home
The first is issue is a tricky one, especially in today’s home market, and the issue is exacerbated with
manufactured homes because they, like cars, depreciate, even in a good market. So, how do you value
Why does that matter? I pay the company, disaster or loss happens, they bring me a new home, right?
Not so fast! First of all, I think it is important to understand that the amount of premium you pay is directly
tied to the value of your home. So if your home is valued at $50,000 the company charges you one price,
if it is $60,000 then they charge you more, if $40,000 then less etc.
Perfect! So I’ll insure my $20,000 dollar home for $50,000 so if I have a loss I will make $30,000, right?
Wrong! Replacement Cost and Stated Value aside (we will get to those later), the company will open a
book, look at the actual cash value of the home, and pay you whatever the actual value of the home is.
Well, if they are going to jip me anyway I’ll just insure my $20,000 dollar home for $10,000 and save
Nice try, and good thinking, but the companies are way ahead of you. Simply put, there are penalties for
So what is the moral of the story? Insure the home for what it is worth. How do you find out what it is
worth? Most agents or brokers can tell you a quick rule of thumb like $50 per square foot in the state of
AZ or $65 per square foot in the state of CA etc. However, there are more accurate ways of calculating
the value such as the Marshall & Swift estimators, which your agent should have access to. However you
decide to value your home and whatever method you use to do so, understand the implications of
valuation. Insure it too high, you will over pay and not get the amount at which you valued the home.
Insure it too low, you get hit with penalties.
Should vs. Is. Expectation vs. Reality. What is the value of your home? Are you prepared for a disaster?
Replacement Cost vs. Stated Value vs. Actual Cash Value
So you have decided on a value of your home; the next hang-up is the settlement option. In other words,
what you get paid when there is a loss. There are essentially three options you can choose from, actual
cash value, stated value, and replacement cost. Being that you will get paid based on one of these
settlement options, it is extremely important to understand the difference between these, in order to close
the gap of Expectation vs. Reality. Let’s start with definitions in terms of what happens when you have a
Actual Cash Value – This means the adjustor comes to your home, or where your home was, looks at the
ashes, asks what year it was, looks in a book and tells you how much is was worth. IF you insured the
home for at least that amount or more, you get that amount. In other words, it means you get what the
unit was actually worth.
Stated Value – This is a weird one, and goes against the concepts of insurance because you can gain
with this arrangement. Stated value means that the company will pay whatever you insure it for (within
reason). So your $20,000 manufactured home can be insured for $50,000 and when the adjustor comes
to where your house was he comes with a check for $50,000 (minus deductibles). Many people call this
new for old. That’s it, when it comes to insurance it doesn’t get simpler. This is not the cheapest option,
but is the simplest and most straight forward in terms of “Should vs. Is”. However, if you say your $20,000
home is worth $10,000, you are not going to catch a break. It all starts at valuation, right?
Replacement Cost – While replacement cost is fairly straight forward, it does cause some confusion in
term of the “Should vs. Is.” While the company will replace your home, they put a caveat in the contract
that says, we will replace the insured unit with a new manufactured home of like size and quality. That’s it.
So you get your home back, but it might not be the same brand, it may not be the same layout. It is just of
like size and quality, but you do get a new home. Good deal right? To be honest, this doesn’t cost a lot,
but lots of people do not go with this option.
Let’s get back to Expectation vs. Reality. As we can see, the settlement option is important, and it is vital
that you understand that what your insuring agreement says. Understand what your policy will pay for,
how much, and under what terms. Going back to my original thought, I think we often times think we
have a stated value or replacement cost settlement clause when we have the actual cash value. “Should
vs. Is.” Expectation vs. Reality. What do you have? Are you prepared for a disaster?
Replacement Cost for Partial Losses
Ok this is fairly straight forward, now that we know what the difference is between actual cash value and
replacement cost. To illustrate the point I would like to ask a question. How much is a 20 year old roof
worth? I mean in comparison to a brand new roof? Um… not much. What about a 10 year old roof.
Again, not much. What about a 5 year old roof. Um a little more, but not much. Do you get my point? So
let’s say you live in Kansas, here come the tornado and blows off your shingles, but leaves everything
else in place. The adjustor comes to your house looks at it says:
Well, have you ever had the roof replaced?
How old was the unit?
Answer 7 years.
Adjustor: Well here is your check for $10 bucks, have a nice day.
And you say, what?! I have been paying XXX.XX per month. Blah blah blah. “Should vs. Is” again, right?
So what happened? It was a partial loss. The company pays on actual cash value. What was the value?
Nothing. So what did you get? Nothing. See it’s easy. How could you have prevented this? Replacement
cost for partial losses. With this option, you get your new roof. Period… um I mean minus deductibles and
all that stuff.
Kind of important, right. And you dodge all the sales pitches from your agent. “Should vs. Is.” Expectation
vs. Reality. What do you have? Are you prepared for a disaster?
Replacement Cost for Contents
Well my guess is, if you wanted to be an insurance agent, you would have your license. So we will touch
on one last thing, replacement cost for contents. Now that we know all about what actual cash value
means, take a look around your house. Guarantee the things sitting in your house are not appreciating,
and if they are you need to make sure your agent knows about those! So in the event of a disaster, what
are you going to get for all your stuff, Actual Cash Value or Replacement Cost? I know which one you
want; which do you have? The same concepts that we have discussed in the other hang-ups, apply here.
“Should vs. Is.” Expectation vs. Reality. What do you have? Are you prepared for a disaster?
When it comes to the contents, though, there is one other thing. What is in your home? Have you done an
inventory? If so, where is it? Do you have the receipts? Can you prove you had the flat screen? Inventory
is an important part of disaster planning. How does the insurance company help you if they don’t know
what you have? This is why companies like home.ownersite.com are so important. “Should vs. Is.” What
do you have? Are you prepared for a disaster?
To close, I would like to tell you a story that illustrates what I have explained.
I am doing my taxes last year, and while we are waiting on the “system” to get its act together. We are
chit-chatting, when she tells me that she can ask a bunch of questions so when the system is up she can
get through it faster. She asks me all the regular stuff, then asks what is your occupation? I tell her
insurance agent. She says really, what kind of insurance do you sell? I explain that my company does
specialty personal lines, one of those being Manufactured Homes. She says hrm (very negatively). So I
ask her, what happened? She goes on to explain she had a Manufactured Home burn to the ground last
year. They think it was arson, but there were no suspects. So, I asked, was it insured? She said it was,
BUT “insurance didn’t pay nearly enough to pay for our losses.” So I probed a bit more, who were
you insured with? They shall remain nameless. Long story short, she had her home under valued, was
paid the actual cash value for it, and did not have replacement cost on her contents. As I asked her about
the coverage she had on the policy, she said the most common thing said by clients after a loss, “I didn’t
know anything about my coverage, had I known, I would have covered it differently.” I told her,
sympathetically of course, that she should have been insured with my agency (not really, but I wanted to).
But the point remains, while there are many insurance agents out there, most of them represent the same
companies or if the company is different, the coverage options are about the same, and regardless the
agent is going to take his commission. The question is, are you utilizing your agent as a risk manager? Is
he helping you protect your assets? Is he helping you understand and close the mental gap between
should and is? Is he closing the gap of reality and expectation? If not, I invite you to take a look at
www.mhinsurancepro.com. You can get an online quote without talking to an agent, or you can call 888-
467-4639 and drill them about the hang-ups I have described here, or any other questions you may have.
Regardless of where you buy your insurance, I leave you with two questions, Should vs. Is. Expectation
vs. Reality. What do you have? Are you prepared for a disaster?
About the author...
Derek Kartchner, is a Certified Insurance Counselor, and 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 firstname.lastname@example.org, or at