Homeowner's Insurance Issues

Today, getting preapproved for a loan may not be enough to prepare you to be a bona fide buyer. You also need to know that you're insurable.

Years ago, lining up homeowner's insurance was one of the last things you did before closing a sale. Now, buyers are finding that it's wise to make it one of their first priorities.

Homeowner's insurance is required to close any home purchase where a new mortgage is involved. A mortgage lender won't give you a loan unless you have hazard insurance on the property with the lender named as an additionally insured. If you can't get insurance, you can't have the loan.

Very few purchase contracts presently include insurance contingencies that make the purchase contingent on the buyer's ability to obtain acceptable homeowner's insurance. But, that situation could change, given current conditions in the insurance industry.

Homeowner's insurance carriers have recently been hit with skyrocketing costs due to an increased number of mold and water-related damage claims. In an effort to control costs, carriers have become hyper-diligent about who they will insure, and what properties they will insure.

For years, insurers have scrutinized applicants to make sure they were a good financial risk-checking credit reports and scores. Now, they also look at your claims record to see if you're a good insurance risk.

HOUSE HUNTING TIP: Insurance carriers are also checking out the property to make sure its claim record is clean before they'll agree to write a policy. This means that you could have a squeaky-clean record, but you could be denied insurance if a claim or two has been filed on the property you're attempting to buy within the last 5 years.

Most insurers participate in a claims-sharing database, the Comprehensive Loss Underwriting Exchange (CLUE). CLUE reports detail every claim made on a property during the last 5 years. A homeowner can obtain a copy of the Clue report on his home online at www.choicetrust.com for less than $15. A buyer cannot directly access the Clue report on a property unless the seller provides a copy. However, an insurance agent who has access to Clue can, and will, check the claims record.

Insurers are also tightening up with already insured homeowners. Long-time insured customers may not be renewed if they have submitted a claim in the last year. To make matters worse, what you think is a casual inquiry, the insurer may interpret as a claim. A woman who had been with an insurer for over 10 years, called to ask if damage caused by a leaky roof would be covered by her policy. The insurer said that it would. The insured never made a formal claim. She replaced the roof and repaired the damage herself. The insurer dropped her at the next renewal date. Her benign inquiry qualified as an unpaid claim.

If you call your insurer for general information, be sure to begin the conversation by saying: "This is hypothetical."Before you go house hunting, talk to an insurance agent to see if you're insurable. First-time buyers should consider taking out a renter's insurance policy. Insurers will often write homeowner's insurance for their existing customers.

THE CLOSING: If your purchase contract doesn't include an insurance contingency, find out if the house is insurable at a price you can live with before you remove your inspection contingency. You can probably find insurance to cover a home with a bad CLUE report, but the cost may be prohibitive.