Grab a Clue - (CLUE is the Comprehensive Loss Underwriting Exchange)

What the heck is CLUE? No, it's not the board game you played as a kid; CLUE is the Comprehensive Loss Underwriting Exchange and it tracks insurance claim histories of both people and properties. As a result, it can be a roadblock to you and your dream of homeownership.

How can CLUE work against you? Well, even if you've never claimed on a homeowner policy before, you could find yourself being denied coverage on your new home because the home has a bad CLUE record! What this means for you is that you'll likely be denied a mortgage, as home insurance is a prerequisite for most lenders to give you a mortgage.

What if you don't need a mortgage? You can still have problems with a poor CLUE record on a home. If you are denied coverage, you have one of two options: you can pay excessively high premiums to get your property protected or you can go without insurance coverage at all. Either option can be expensive and risky.

This can be a real shock to people who have a good insurance history. Most of us who have had insurance assume that insurance on our new home will be routine. CLUE means that you can't depend on that. In fact, you may even have an insurance certificate issued and in hand, and find that the insurance is denied after you have closed. Then, you could be in breach of your mortgage contract, which generally requires home insurance.

So how does CLUE work? CLUE keeps record of a homeowner's insurance claim for 5 years. They actually report on claims for about 30 kinds of losses, from wind damage to dog bites. So, the database not only covers problems with the home itself, but liability claims too. More than 600 US insurers, or 9 out of every 10, provide and share data via CLUE.

An insurer will request a CLUE report just before issuing a policy. The timing causes a serious problem for the buyer. The insurer might be unwilling to issue a policy, or the premium might go up, substantially.

So, you can just ask the seller if any claims have been made, right? Wrong. If the seller has owned the home for less than 5 years, the claim may have been made previous to that person owning the property. Further, since CLUE is relatively new on the insurance market, it may not have affected that person's insurance. But it can still affect yours as the new buyer.

What can you do about this? At the present time, your best bet is to have your purchase contract written properly. It should say that you have the right to receive and review the CLUE report on the property to be purchased before closing the deal. A similar technique is to require in the contract that the owner provide a CLUE report well ahead of closing and that closing will be conditional on your review of the CLUE report.

What about if you are the seller of the home, and you've found out that your property has a negative CLUE report? The only thing that will fix this is time. It will be 5 years from when the claim is made until it ages off the report. You may have to hold onto your property for this time, in order to be able to sell.

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