If you buy a house, youll need to purchase homeowners insurance as well. An insurance company will look at your background and credit history to decide whether to issue a policy and to set your rates, but insurance claims submitted by the previous homeowner could also affect the companys decision.
Why Insurance Companies Consider a Previous Owners Claims History
Most homeowners insurance companies search the Comprehensive Loss Underwriting Exchange (CLUE) database, which contains information on claims filed at an address within the past seven years. If you tried to obtain homeowners insurance and the insurer learned that the previous owner had filed a few claims in a relatively short period of time, the company might conclude that the house wasnt well maintained and would be risky to insure. It could charge you exorbitant premiums or deny coverage. Previous claims for water damage could be particularly problematic, since those repairs are often expensive.
How Problems the Insurance Company Didnt Pay to Fix Could Affect You
In most states, when a homeowner contacts an insurance company or agent to discuss a problem that needs repairs, a representative automatically opens a claim. If the damage isnt covered or the cost of repairs is less than the deductible and the homeowner pays out of pocket, the insurance company closes the claim and doesnt issue a payment. The claim still shows up in the CLUE database, however, and can affect an insurance companys decision on whether to insure a new homeowner and what rates to charge. Many homeowners are unaware of this.
How to Make Sure Youll Be Able to Insure Your New Home
Before you agree to buy a house, request a copy of the propertys CLUE report from the seller. It will only show information about claims associated with the property, not information on the seller. If there have been no claims in the past five years, you shouldnt have trouble getting insurance if you buy the house.
If the owner filed claims for damage and repairs were made, verify that the repairs were performed correctly before you agree to buy the house. If the report shows multiple claims, that may make it hard for you to get insurance. Look at what the claims were for, whether the damage was preventable and whether there were multiple claims for the same issue that were unrelated to weather.
Research a Houses Insurance History Before You Buy
When you apply for homeowners insurance coverage, the company will check to see if you and the seller have filed any claims in the past seven years, including any that were closed without payment because the owner paid for repairs out of pocket. If both you and the seller have filed claims in the recent past, that could make it particularly difficult to get coverage. Make sure you know how many insurance claims have been filed and for what reasons before you decide to purchase a house so you dont wind up with a property you cant insure.
Published with permission from RISMedia.