I nearly burned down my kitchen last night.
I was heating a cup or so of oil in a wok, and somehow, something on the stove caught fire and ignited the oil. I left the room for a minute (yes, bad move) and came back to find flames and black smoke -- and the fire was spreading up into the range hood.
I got the kids out of the house and put the fire out as quickly as I could, but it left quite a mess. The range hood is ruined, and a couple of our kitchen cabinets got scorched. We'll probably end up replacing several kitchen cabinet doors and the range hood, sanding and refinishing the side of one of our cabinets, and repainting the kitchen ceiling. That'll probably mean a thousand dollars or so and a weekend of work, but in the end, it's not a big deal. It could easily have been a lot worse.
This morning, after hearing about the mess, a friend asked, "Did you call the insurance company?" Until that moment, calling the insurance company hadn't crossed my mind. Our deductible is $1,000, and if I did the repairs myself, I didn't think it would cost much more than that. Of course, thinking further, if I hired pros to do the work, it could easily end up costing $4,000 or more.
Wouldn't that be worth calling the insurance company, at least to ask about coverage? I say no. Here's why.
Getting a CLUE
We all know that if you make too many insurance claims, your rates will go up. That makes sense: The insurance company prices your policy after evaluating how much of a risk you are. If you make more claims than they expected, it's reasonable to conclude that there's a good chance you'll make more claims in the future, and they will charge you more to compensate themselves for those future claims.
You may not know that those claims also get reported to a bureau, just like credit dings do. And those claims show up on a report, called a CLUE (for Comprehensive Loss Underwriting Exchange) report, that other insurers can access when deciding whether to insure you and how much to charge. Claims stay on your CLUE report for five years
What's more, even calling to ask about coverage can cause problems in some cases. Some insurance companies require their agents to report some or all inquiries to the CLUE database. Not all companies do this, and those that do may track only certain types of inquiries (such as those related to water damage, or where the policyholder's liability is a factor), but the effects can be significant. If your history starts to suggest that your house has chronic problems with water leaks, for example, your insurance company may hike your rates, or even drop you, for fear that your house may develop a chronic mold problem.
And thanks to the CLUE, that history can haunt you with your next insurance company -- or when it comes time to sell your house. It's not common, but I have heard of deals falling apart when homebuyers found that they couldn't get insurance on a property.
Don't be a hot potato
That may not seem fair, but it's nonetheless legal. The Supreme Court upheld practices by insurers Safeco
So here are some ways to keep yourself from getting CLUEd out of coverage:
- Ask your agent up-front about reporting. If you do call with an inquiry about a problem, ask your agent what they're required to report before you talk about the problem. They'll tell you.
- Keep your house well-maintained. Take care of that roof and that old plumbing before they start to cause problems. And if you do start having problems because of something that's arguably routine maintenance, think twice before calling.
- Save insurance for big problems. If you're looking at a couple of thousand dollars in damage, it's not worth filing a claim -- a few small-potatoes claims can cost you a lot in the long run, even if the total dollar amount is relatively small. Keep your deductible high -- $1,000, at least.
- Be very careful with water-related claims. If you can fix the damage yourself, do so -- having your home tagged as a high-risk property can be a huge problem when it comes time to sell.
- Review your home's CLUE report if you suspect problems. As with a credit report, you're entitled to a free copy of your home's CLUE report once a year or if you've been denied insurance. Remember that, as with a credit report, you have the right to dispute any errors in your CLUE report.
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Fool contributor John Rosevear invites you to send him your comments, questions, and ideas. He doesn't own shares of the companies mentioned in this article. Berkshire Hathaway is an Inside Value and Stock Advisor recommendation. The Motley Fool's disclosure policy keeps a fire extinguisher handy.