Knowing Your Insurance Claim History Could Avoid Closing Nightmare

For most of us, at one point in time you will most likely file a claim either for a loss (theft) or damage (weather, fire or water).    This recently happen to some friends of my niece who were renting and decided to buy a home outside of Toronto.

They had been living downtown and were renting an apartment.   About a year ago someone broke into their storage locker and stole two bikes worth about $900.  Since they had contents insurance they decided to put in a claim as they had a small deductible.  The insurer honoured their claim and a cheque was issued for the loss.

Now, the husband loved cars and he had a 1990’s Ford Mustang which was parked in the driveway.  Every night he would cover it with a tarp and secured the steering wheel 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.   This was a serious loss so an insurance claim was made and their insurer honoured the claim.

They had enough of urban Toronto living so 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 – it should be stated that I was not their realtor.   They were smart buyers and their offer contained the condition of financing and inspection…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 for the upcoming move.

However it seems those insurance claims would come back to haunt them.   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 they could not buy the house.   This was a bad situation in that if they did not close they in breach of the agreement of purchase and sale…you can smell the lawsuit coming.   After days of anxiously calling they were able to find an insurer who would cover them but the premium was 6 times what it should be.   They 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.  I have had bikes stolen from my garage and my assessment was just to replace them and avoid the claim.  Last summer over 200 homes in my neighbourhood were flooded and looking at $25,000 damage to my basement I submit my first ever household claim.
  2. If they had been my clients, I would have found this out during our pre-buyer discussions. Knowing home insurance could potentially be problematic, we could now address it in proactive manner.   A discussion with their present insurer regarding their intentions of buying a house and if they would cover them would be a start.   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.

If you are buying your first home you are going to be cautious.   Make sure you have the right realtor who will ask the right questions so to avoid any potential landmines.