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Are You CLUE-Less About Home Insurance?

January 5, 2006 By:
Andrew Lasner, JE Feature
Posted In 
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Buying a home without getting a CLUE can land you in deep trouble.

CLUE stands for the Comprehensive Loss Underwriting Exchange. A CLUE report contains consumer claim information provided by the insurance companies. It includes policy information such as name, date of birth and policy number; claim information, such as date of loss, type of loss and amounts paid; and a description of the property covered. For homeowner coverage, the report includes the property address. The database contains information of up to five years of personal-property claims history.

Given the rash of floods and hurricane-related disasters in recent years, getting a CLUE report has become more vital. The results of the CLUE report can be a major roadblock for both buyers and sellers on the highway to homeownership.

Home buyers who have never made a claim on their own policies are finding themselves being rejected for insurance coverage on the house they've just bought, because the house itself has a poor CLUE record.

If you can't get insurance coverage, you can't get a mortgage. Worse, if you pay cash for a house and then get turned down for coverage, you can find yourself between a rock and a hard place - either paying excessive premiums to get your property protected or "going bare," with no insurance protection against a variety of perils.

Buyers assume that because they personally have a good insurance history that getting a policy on their new home will be routine. You might find, after closing, that you can't get a policy and are in breach of your mortgage, which requires you to keep the property - the lender's collateral, after all - protected. Even more shocking is the possibility of closing on your new home - with an insurance certificate issued - and then having insurance denied after you close.

The CLUE report is not available to the insurer until after closing, so insurers typically put a caveat in the policy language allowing them to refuse coverage should adverse information about the property be discovered after the insurance certificate is issued. If your own insurer refuses to cover you, then you'll have to scramble to find someone who will, usually at a hefty premium.

Actuarial studies conducted by insurance companies have shown a correlation between a consumer's prior loss history and his/her future insurance loss potential. Along with other factors, this history could be considered when companies make their decisions to issue policies and determine premiums.

So now you have a buyer who is expecting to have $X as an annual insurance cost, versus $X times three. Maybe they would not have purchased the house knowing that it was "insurance challenged."

What's more, a seller could be unaware of prior claims if the claims were made before he bought the house.

There have been horror stories, especially in a fast-moving real estate market, where a seller has not lived in the home for more than a year or two. A seller may have been in the house for just nine months when she put it on the market, not knowing in four years previously, the home had been flooded. Remember: The CLUE report tracks history for five years.

Insurance companies have been getting so many water-related damage and mold claims that it became unprofitable for them, so many have modified their policy language to exclude damage related to water.

This is another reason for buyers to research the property thoroughly and get their purchase contracts written properly. I strongly urge buyers to make sure their agents or attorneys insert a clause in the contract giving them the right to receive and review the CLUE report before closing the deal.

Andrew Lasner is Realtor and a senior real estate specialist at Keller Williams Preferred in Newtown. He can be reached at 215- 860-0800 or e-mailed at: Andrew1@ comcast.net.

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