Before committing to purchasing a home, it’s important to investigate the property’s history of insurance claims. If the home has experienced frequent claims, it could either raise red flags or provide an opportunity to negotiate a better deal. Understanding the role of insurance claims in the home-buying process can help you make a more informed decision.
The Impact of a Home’s Claim History on Your Future Insurance
A home’s past can have a significant influence on its future insurance costs. Once you obtain a claims report, it’s essential to have a professional interpret the data, especially if you’re unfamiliar with how insurance policies work.
What Home Insurance Covers and Why It Matters
Home insurance is crucial because it safeguards one of your largest investments: your home. Without adequate coverage, you may face financial difficulty in the event of damage, leaving you unable to repair or replace your property. Home insurance typically extends beyond just covering the home’s structure. It can also protect other structures on your property and cover personal belongings.
Insurance offers peace of mind, knowing that you’re financially protected against potential disasters, from natural events like fires or storms to unexpected accidents, such as a burst pipe. Additionally, many lenders require proof of home insurance before granting a mortgage, as they want to ensure their financial investment is secure.
However, premiums and deductibles can vary, depending on the level of coverage. The more comprehensive the policy, the higher the premium might be. Deductibles are the amounts you must pay out of pocket before your insurance coverage kicks in, so it’s important to factor these costs into your overall budget.
Understanding How Home Insurance Claims Work
A home insurance claim is the process through which a homeowner seeks reimbursement for damages, losses, or injuries that occurred within the coverage period. Here’s a breakdown of how the process typically works:
- Gather Necessary Information: Before filing a claim, homeowners should collect policy details, the date of the incident, and a description of the damages.
- Report the Claim: Contact your insurer as soon as possible to report the incident. A claims adjuster will be assigned to evaluate the situation.
- Home Inspection: The insurer may send someone to inspect the damage or have a conversation over the phone.
- Receive an Offer: After the inspection, the insurer will provide a payout amount based on your coverage.
Some key points to keep in mind include saving all receipts for repairs, understanding the specific time frames for resolving claims, and knowing who is involved, such as your mortgage lender or contractors.
Most Common Home Insurance Claims
The three most common causes of home insurance claims are theft, property damage, and weather-related issues. If a home you’re interested in has a claim history, it’s likely to involve one of these areas:
- Theft: Theft accounts for a relatively small percentage of claims (around 0.6%), but it can still be costly, with an average claim of $4,415.
- Property Damage: This includes non-theft related damage, such as vandalism, burst pipes, or other accidents. Water damage alone accounts for nearly 20% of claims.
- Weather Damage: Storm-related damage, including wind, hail, and lightning, makes up about 45% of all claims, with fire and lightning causing the most expensive damages, averaging over $77,000 per claim.
How Past Claims Can Affect Your Purchase
When considering a property with a history of insurance claims, it’s essential to evaluate whether the previous claims will affect your ability to obtain insurance. Even if the seller has resolved the issue, some claims—particularly smaller repairs made without filing an official claim—could still appear on your record and influence your insurance options.
Some homeowners may fix minor issues themselves but still discuss major repairs with buyers. Unfortunately, these small repairs might be logged as claims, making it more challenging for you to secure insurance.
Don’t Panic if the Home Has a Claim History
If you find that a potential home has a history of claims, it doesn’t necessarily mean you can’t get insurance. You can still find the right coverage with the help of independent insurance agents who have access to multiple carriers.
How to Obtain a Home Insurance Claims History Report
To get a detailed history of a home’s claims, you can request a Comprehensive Loss Underwriting Exchange (C.L.U.E.) report. This report includes any claims made over the past seven years, such as those for burglary, fire, water damage, or vandalism. By reviewing this report, you can gauge the risk of buying a property and whether previous repairs were adequately completed.
If the seller provides the C.L.U.E. report upfront, it’s an indication of transparency and honesty. If the report shows no claims in the past five years, the home is likely a safer bet in terms of insurance availability.
Negotiating a Better Deal with Claims History
In some cases, the claim history might be useful in negotiating a lower purchase price. For example, if the home has experienced a break-in, you could ask about security upgrades like new locks or an alarm system. If these upgrades haven’t been made, you might be able to negotiate a discount.
Steps to Manage Your Home Insurance Claims
Managing your insurance claims wisely can prevent future issues. Here are a few tips to reduce your premiums and keep your insurance claims low:
- Pay for Minor Repairs Yourself: Small claims can raise red flags with insurance companies. Consider handling minor repairs out of pocket to avoid increasing your premiums.
- Evaluate Whether You Need to File a Claim: Before calling your insurance agent, assess whether the damage is worth filing a claim. Small issues may not justify the higher premiums that can result from making a claim.
- Bundle Your Policies: Insuring both your home and car with the same provider can often lead to discounts.
Common Mistakes to Avoid with Home Insurance
Here are a few errors homeowners commonly make when dealing with home insurance:
- Poor Communication: Make sure to communicate clearly about the damage and include photos if possible.
- Not Having a Home Inventory: Keeping a detailed inventory of your possessions can help make claims easier and more accurate.
- Not Understanding Your Policy: Read your policy carefully and contact your agent for clarification on coverage details.
- Delaying Your Claim: Filing your claim promptly can speed up the process and ensure that you document the damage before making repairs.
- Inadequate Coverage: Ensure that your policy covers the replacement cost of your property, rather than just the actual cash value.
By taking these steps, you can avoid costly mistakes and ensure that your home is properly protected for years to come.
