Avoiding Insurance Land Mines

Sometimes, it’s better to take a pass. What you need to know before submitting an insurance claim.

By Michael McCann

About a year ago, a couple my niece knows had their bikes stolen from their apartment, setting off a chain of events that almost led them to losing a home and ending up in court. Upon finding the bikes gone, the couple decided to file an insurance claim, and a cheque was issued for their loss. Not long after, the husband’s prized Ford Mustang was also stolen – which resulted in yet another insurance claim and another cheque.

Feeling they’d had enough of urban life, the couple decided to escape the city. Following a month of searching, they found their dream home and put in an offer. Their sale and purchase agreement contained the usual conditions – financing and inspection. The bank agreed to a mortgage and the home inspection was positive. Waivers were signed, and they now had a firm deal – time to start packing.

But wait. A couple of weeks before they took possession of the house, they applied for home insurance coverage but were declined: based on their two recent claims, they were deemed too risky. Without a policy, they couldn’t get a mortgage, and the deal would fall through. Not only would they lose their home but they’d also face a possible lawsuit. After a week of frantically calling around, they did find an insurer who would cover them – but the premium was six times higher than it should have been. Reluctantly, they paid the steep price and were able to secure a mortgage.

To avoid this unfortunate experience, I make three suggestions.

— Before you submit an insurance claim, consider whether the loss is worth it. If you make more than two claims within the same two-year period, it could get you flagged.

— Find out from your insurer whether you qualify for home coverage before making an offer on a house.

 — If you’ve made several claims and are buying a house, make insurance one of the conditions of the deal. This will afford you the security that, if insurance is refused, you can walk away from the deal without any consequences.

 MICHAEL McCANN IS A TORONTO-BASED REAL ESTATE AGENT FOR ROYAL LePAGE.