Avoiding An Insurance Land Mine – Zoomer May 2013

Avoiding Home Insurance Land Mines  May 2013

Avoiding Home Insurance Land Mines May 2013

Everyone at one time will likely file an insurance claim either for a loss or damage.   Here’s an incident which happened to some friends of my niece.

They had been living downtown and were renting an apartment.   About a year ago someone stole two bikes worth about $1,000.  Since they had contents insurance they decided to put in a claim. The insurer honoured their claim and a cheque was issued for the loss.

Now, the husband prized possession was a 1990′s Ford Mustang which he parked in the driveway.  Every night he would lovingly cover it with a tarp and secure the steering wheel’s locking device.   One morning he woke up and found the tarp neatly fold on the lawn and no Ford Mustang.   Things happen.  A police report was filed, but unfortunately the car had disappeared…most likely heading overseas.   With this serious loss it was submitted to their insurer and once again the claim was honoured.

Having enough of urban living they decided to buy a house outside of the city.   Following a month or two of searching they found the right home and they put in an offer.  They were smart buyers and their offer contained the condition of financing and inspection, however no insurance condition.  The bank said yes to providing a mortgage and the home inspection was positive.   Waivers were signed and they now had a firm deal.  Nothing left now but to start packing.

Now, remember those two back to back insurance claims?   A couple of weeks before they got possession of the house , they applied for home insurance coverage and to their surprise they were declined.   With no home insurance there would be no mortgage therefore no house purchase.   This was a bad situation in that if they did not close they in breach of the agreement of purchase and sale and the seller would initiate a lawsuit.   After a week of anxiously calling they were fortunate to find an insurer who would cover them but the premium was 6 times what it should be.   They reluctantly paid the premium and they were able to secure a mortgage.

There are two points I want to make:

  1. Before you summit an insurance claim truly consider whether the loss is worth it.  Whether it’s $1,000 or $100,000 if you submit more than 2 claims within a the same two year period it could be enough to be flagged. Realize for insurance companies it does not matter if you have been with them 2 years or 20 years you will be treated no different.
  2. A discussion with their insurer regarding their intentions of buying a house and if they would be cover would have been a prudent beginning.   As well, putting in a condition of getting insurance within the agreement of purchase and sale, allows the buyers the security that if insurance is refused they back out of the deal with no consequences.

By asking the questions you might just avoid a very expensive insurance landmine.

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