Get a C.L.U.E.! Really! -- Insurance Eligibility Determined by CLUE Report.
A concerned homebuyer contacted me regarding insurance premiums on a new home. The question essentially centered on why a hazard insurance policy on the new home under contract was so drastically higher than on the buyer’s comparable, existing home. An explanation from the insurer was that a claims history on the property itself can affect the premium, even though the homebuyer had never placed a claim in the past. CLUE stands for Comprehensive Loss Underwriting Exchange Report, which most of the insurance industry uses in evaluating home and auto insurance policies. When an application is made for home owner’s insurance, two reports are obtained by the insurer: one for the individual (buyer) and one for the property. These reports assist the insurers for determining a risk profile for the policy. The reports cover personal details along with detailed records of past claims for the past seven (7) years. Two Reasons a Prospective Homebuyer Should Get a Property CLUE: • #1—The report may disclose past matters affecting the property not disclosed in the seller’s property disclosure. There may be surprises that a homebuyer should seriously evaluate before proceeding to close such as indications of repeated burglaries, hidden water damage, etc. • #2—The report may tip off the homebuyer early in the closing process that insurance premiums may be substantially higher than they would be on a comparable house. Obviously, this could result in an unnecessarily high monthly mortgage escrow payment. TIP: An individual can obtain a copy of his own CLUE report, which is ordered similarly to a credit bureau report. However, a property report must come from the property owner. Therefore, it is important to require the seller to produce this document early in the negotiation process. When not readily available, the sales agreement should require a C.L.U.E. be produced during the due diligence period. This way, should concerns arise, additional time can be allocated to properly evaluate the issue disclosed and the overall purchase decision.