“Do I really need insurance for my park? I only own the land. The tenants own the homes.” That’s a question I got once from a guy who was new to the mobile home park business, who owned his place outright. Now I’m not an insurance agent, but from owning mobile home parks as long as I have, I can tell you one thing: if you’re not insuring your park, you’re asking for trouble.
Most people think insurance is about covering them for property damage. They might think that they can take the money they were going to pay in premiums and put it into a bank account to pay out-of-pocket if damage ever happens. But, you don’t just need insurance for property damage. You need it to protect you from lawsuits, which are usually way more expensive than any basic repairs.
Is Insurance Even Required by Law?
I can mainly only tell you about Oregon and Washington State when it comes to insurance requirements for mobile home parks, because that’s where I own them. And I can tell you this: there are none, at least none under state law. The insurance requirements you deal with in Oregon and Washington are going to be covered by your lender, not your lawmaker.
When you get lending to buy a mobile park, they’re going to make you insure it because they don’t want something to happen that costs the park a lot of money that you can’t pay back. They might do the insurance policy themselves and tack the cost of it onto your overall loan or they’ll just tell you what you’re required to have and send you on your way to buy the policy. Stick to those requirements to the letter and you should be fine.
That insurance policy is going to cover you for things like damage to your common areas and the park itself. It’s also going to cover something that might be the most expensive part of park ownership if you’re ever unlucky enough to face one—liability claims. Even if you own your park outright and don’t want to spend the money, you need liability insurance.
Why Liability Insurance Is Essential for Your Safety
Of course you want property insurance to protect against damage to your common areas due to accidents or weather, but that’s not the insurance that most property owners need the most. You need insurance to protect you against claims from people who are injured on your property.
- Insurance protects you from personal injury lawsuits: One of your tenant,s or a guest of your tenant, might trip over a pothole or slip on ice and break their ankle. That is a recipe for a lawsuit. While the law says that the person can only sue you for negligence, the fact that you didn’t salt the common areas during cold weather might be enough to be called negligence. If that person takes you to court, and wins, if you don’t have insurance, you’re going to be up the creek because you have to pay that money out-of-pocket.
- Insurance covers your defense bills for lawsuits: The insurance company won’t just pay out a lawsuit for you; they cover the cost of defending you during that lawsuit. If you’ve ever hired a lawyer, you know they aren’t cheap. All the things involved in a lawsuit, from depositions to subpoenas to investigations are going to cost money. If you have insurance, they’ll foot that bill.
- Insurance protects you from fraudulent claims: Insurance companies do investigations when they receive a claim, so if you have someone trying to make a quick buck by faking a claim, that insurance company will investigate it. They can hire private investigators, find histories of fraudulent claims, and hunt down witnesses to prevent your park from having to pay out fraudulent cases. Again, all of this is covered on the insurance company’s dime, not yours.
You’re going to want to talk to an insurance agent you trust so you can get the right policy, and not wind up going with an insurance company that has a history of weaseling out of claims. If you don’t know much about insurance, you’ll need to find someone who does to help you get the right coverage.
Insurance and Tenant Lease Agreements
The need for insurance doesn’t apply to every single item when it comes to a mobile home park. For example, you might not want to worry about insuring individual dwellings. Sometimes, that’s more trouble than it’s worth. Really, you only need to insure the individual homes you own if they’re worth more than $10,000 each. Otherwise, you’re pretty much flushing money down the drain because your insurance premium is going to add up to that in a relatively short period of time.
Should you require that your park residents carry their own insurance? You can put it in the lease, but good luck enforcing it. Here’s the deal. If you put a provision in a lease that says someone has to have insurance, but they don’t have insurance, your only recourse is evicting them for not living up to the lease terms. Are you really going to go through the trouble of evicting someone from your park because they don’t have insurance coverage? That doesn’t make sense. After all, the only person they’re hurting by not having insurance is themselves. You’re not going to have to pay for any damage to their home, and if one of their guests claims liability losses, they’re going to go after your liability insurance anyways, not theirs.
Honestly, I think that trying to get tenants to carry coverage on their dwellings is more trouble than it’s worth. But, while the laws in Washington and Oregon don’t require you to carry insurance, you still need it. If you have a lender, they’re going to make you get insurance anyway. And if you don’t, you’re still going to want that coverage—unless you’ve got six figures tucked away in a bank account to pay out a liability lawsuit.
Sometimes, the cost of insuring your park can really add up, making that park a bit more costly than you anticipated. If that’s the case, you might want to give me a call. After several decades in the business, I’m experienced at owning and operating these properties while keeping the community running smooth. Either give me a call or drop me an email to get more information on selling your park.