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Homeowner's Insurance Can Kill a Deal

You probably know that it's not a good idea to make too many claims on your homeowner's insurance policy because your insurer could drop you. What you might not know is that making a claim could make selling your home more difficult down the road. What's more, you could find your home's value damaged or a sale jeopardized even if a previous owner, and not you, made a claim.

Insurers increasingly are using a huge industry database, called the Comprehensive Loss Underwriting Exchange or CLUE, to drop or deny coverage based on a home's history of claims or damage reports.

Insurance companies are guarding against rising losses from water and mold damage. So a single report of water-related problems may be enough for insurers to shun your home. In previous years insurers used the CLUE database in large part to watch for fraud and for consumers who had a history of filing numerous claims; however, after loosing billions of dollars in recent weather related disasters, insurance companies have become more aggressive about screening for other risks - including water damaged homes that could spawn future claims.

Many of the nation's largest property insurers have dropped thousands of policyholders from coast to coast and stopped writing homeowners insurance in several states. As a result there have been reports of residential sales falling through at the last minute because of CLUE-related problems in securing insurance. If you're not able to get insurance, you're not able to close the deal.

It may seem particularly unfair that a home could be blackballed because of one claim, let alone a single report of damage that doesn't lead to a claim; however, everyone needs to be cautious about this issue. While you can't do much about insurers' overreactions, you can do something to protect yourself in this particularly difficult time.

Among them:

  • Keep your home in good repair. A solid, watertight roof, good plumbing and a decent paint job can protect your home from various water disasters -- the kind of damage that's scaring insurers the most these days. It's a good idea to regularly check the hoses on your clothes- and dish-washing machines, since cracked or burst hoses often lead to serious water damage.
  • Keep your deductible high. Pay for smaller expenses out of your own pocket. Homeowners insurance should be reserved for the big disasters, not the little problems you can easily pay for yourself.
  • Think twice about water-related claims. This is especially true if you plan to sell within a few years. You could be better off paying to repair the problem yourself rather having your home be branded as high risk.
  • Don't tell your insurer about problems unless you're sure you'll file a claim. This last piece of advice is unfortunate, because insurers and insurance agents can be a decent source of counsel on whether it's worth filing a claim. Since any damage you report could get passed on to the CLUE database.
  • Keep in mind that Florida Law will require you to disclose if you are aware of water damage to your home in most residential real estate contracts. You shouldn't ever try to hide it. Hiring a contractor with good references to adequately perform remediation of the damage and keeping complete records of the work performed is essential. You want to have the evidence in hand to convince a prospective buyer that you quickly and effectively addressed the problem professionally.
  • Consider getting a copy of your CLUE report. If you've been denied insurance, you can get a copy of your home's CLUE report for free; otherwise, you'll pay about $8. You have a right under federal law to dispute any erroneous information on the report. To get a copy, contact ChoiceTrust at http://www.choicetrust.com/.

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