What You Should Know About Homeowners Insurance

What You Should Know About Homeowners Insurance

Last updated: August 2005

What is homeowners insurance?
How can I save money on my homeowners insurance?
Can an insurer raise my homeowner insurance rates for filing a claim?
How does an insurance company decide how much to charge me?
What is CLUE?
What is in a CLUE report?
Who can get a copy of my CLUE report?
How can I keep my insurance payments low?
What are some reasons that insurers won't cover me?
I've been denied coverage for homeowners insurance, what can I do?
What should I do if my home gets badly damaged?
I sent in a claim and it was denied. What should I do?
What is a FAIR Plan?

What is homeowners insurance?

Homeowners insurance protects you, as a homeowner, against loss from theft, fire, storms, and other things that can cause damage to your home or your property. What homeowner's insurance protects against (or "covers") is stated in your written insurance policy. Most policies — but not all — cover your home and the personal property in your home, such as furniture, appliances and clothing. Most homeowners insurance policies cover medical payments and any money that you would have to pay if someone got hurt while on your property.

Most homeowners policies do cover: Fire and lightning damage, theft and vandalism damage, smoke damage, and storm damage.

Most homeowners policies do not cover: Damage by floods, earthquake damage, termite or other insect damage, and loss from normal use of your home or property within your home.

One of the most important parts of homeowners insurance is the amount of coverage you are getting. If your home is insured for $100,000, that is the most you will be able to get from the insurance company if your home is destroyed. The amount of coverage on your home is listed on the first page of your insurance policy, called the "Declarations Page". Make sure your total coverage is enough to re-build your home if it is totally destroyed.

If a fire destroys your home, your homeowners policy will also pay for your loss of personal property, like your furniture and appliances. But to make sure you get the right amount, you should make a list of all of your possessions in your home, and how much money they are each worth. Write down the serial numbers of televisions, stereos and other electronic equipment, and take pictures of them. Keep this list outside of your home.

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How can I save money on my homeowners insurance?

Before you buy your homeowners insurance policy, shop around. See how much your insurance would cost with at least five different insurance companies. Or go to 4FreeQuotes.com for free insurance quotes.

A "deductible" is the amount you have to pay for a loss before your insurance will cover the rest. You can save money by raising your deductible from $500 to $1000. You would have to pay the first $1000 in losses, but your payments every year will be smaller — you might save 20-25%.

If you buy your homeowners insurance from the same company that you have your car insured with, you might get a discount that saves you some money.

Ask your insurance agent if there is anything you can do to make your insurance payments smaller. Some companies will lower your payments when you put in a burglar alarm, other security equipment, or a fire sprinkler system.

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Can an insurer raise my homeowners insurance rates for filing a claim?

Yes. When you ask your insurance company to cover any damage to your home or property, you file a "claim". One claim may not make your payments get bigger, but more than one claim made within a few years of the first claim normally makes your payments go up. Insurance companies even cancel coverage for people who file too many claims. They will sometimes cancel coverage because of claims you made in the past for a certain piece of property. There are no laws that can stop an insurance company from raising your payments.

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How does an insurance company decide how much to charge me?

They look at a few things when they start a policy or agree to renew a policy. Here are some of the things they look at:

  • How often you have made a claim or how long you have gone without filing a claim
  • How long you have been a customer, and
  • If you have made a claim, they look at what the claim was for and what happened that led to that claim.

Insurance companies can learn all of this from a CLUE Report (a Comprehensive Loss Underwriting Exchange Report).

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What is CLUE?

CLUE is a large collection of information (a "database") watched over by a company called ChoicePoint. The database has information about more than 40 million claims that people have made over the last five years. It is used by 90% of insurance companies. Insurance Services Office (sometimes called ISO) has a similar report called an A-plus report. Because the CLUE database came first, all of these reports are called CLUE reports.

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What is in a CLUE report?

A CLUE report lists all claims made on a property. Insurers keep track of the claims made by you or by the people who owned the property before you. If an insurer sees that you have made a lot of claims, or a lot of claims have been made on the property you are looking to insure, it may decide not to cover you or give you a new policy.

If you have made a lot of claims, it may be hard to get homeowners insurance. Sometimes even calling and asking the insurer about what is covered by a policy will show up on the CLUE report, even if you never filed a claim. The best way to stop this information from showing up on your report is not to call your agent about small problems.

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Who can get a copy of my CLUE report?

Anyone with a financial interest in a piece of property can order a report. If a CLUE report or an A-plus report has information in it that makes your payments go up or makes insurance companies refuse to cover you, you can ask for a free report. A real estate agent can order a report after he or she signs a contract to buy a home. You can also ask the seller of a property to give you a copy of their CLUE report if you are thinking about buying. Visit the ChoiceTrust website for more information about ordering a report. 

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How can I keep my insurance payments low?

Homeowners should be very careful when making a claim on their homeowner’s insurance. Here is what you should do:

  • Don't file small claims. Be careful when filing claims for things like lost luggage or other personal property. You may need to claim a bigger loss later. Even if you file a claim and the insurance company doesn't cover it, your claim may be listed as a claim and loss. If you file many claims in a short period of time, your insurance company may cancel your insurance policy.
  • Be willing to pay more money yourself, and only report big losses. You can save over 20% on your payments by raising your deductible to $1,000 or even $2,500. A high deductible might make it easier not to ask about or file smaller claims. Raising the deductible also makes it safer for an insurance provider to give you homeowners insurance and may help them decide to keep your coverage.
  • Ask questions carefully, and try not to call the company.  If you need to call your insurance company, don't talk about any damage to your property unless you are going to file a claim. In some states, calling your insurance company to ask about making a claim may be treated the same as a property loss. Know what your homeowners insurance policy covers and the deductible. Remember, do not call your insurance company unless you plan to file a claim and know your losses will be covered.
  • Get a CLUE report. You can get a CLUE report for your insured property from ChoiceTrust for $9.00.  You can get an A-PLUS report for $13.00 if you send a fax to them asking for one, or for $9.00 if you ask for one in a letter. You can get the reports for free if you have been refused coverage because of the information in the reports. If you think that your report is wrong, you can get it corrected, or at least get a note in your report about what you think is wrong with the report.
    Note: If you are selling your property, you should get a copy of your report to make sure that there are no mistakes in it. If you are buying some property, you should ask for a CLUE report from the seller or their real estate agent before you offer to buy the property.
  • Don't apply for too much credit.  If your credit is checked several times in a short period of time, this can make your credit look bad.  A credit check is made each time you apply for a loan or any form of credit. But, credit checks by insurance companies will not make your credit look bad. 

More and more insurance companies are checking your credit record when they decide whether or not to sell you homeowners insurance. Insurance companies look at whether or not you pay your bills on time when they make their decision about whether to insure you and for how much.  Illinois law does not let an insurer make their decision to insure you by only looking at your credit report, but they are allowed to look at it when making their decision. If an insurance company will not sell you insurance because of your credit report, you can get a copy of the report for free.  See below for more information about what to do if you are denied coverage.

  • Call a professional repairman first to find out how much it will cost to fix your damaged property. Insurance companies often will send out a repairman to estimate damages before agreeing to cover damage. So getting your own estimate can keep unwanted information off your CLUE report.
  • Keep your home in good shape so you won't need repairs. Losses due to water damage look bad to insurers because they are expensive to repair and can lead to other losses, like mold infestation. Check all of your house's water fixtures for leaks, such as toilets, dishwashers, clothes washers and refrigerators. Check hoses for leaks and replace older seals and hoses before they become a problem.

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What are some reasons that insurers won't cover me?

There are some common reasons insurers might not give some people coverage. Common reasons can include:

  • Old electrical systems with fuses.
  • Damaged or old roofs.
  • Two or more claims in the last 3 years for a property or insured person--especially if the claims are related to water damage.
  • Old plumbing systems.
  • Problems with credit reports. 
  • Sometimes, if coverage has been denied for housing for more than one family.
  • Individual insurance companies may have their own reasons for not giving a person coverage. Some companies think trampolines, wood burning stoves, unfenced swimming pools, and some breeds of dogs are big risks that are not worth taking.

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I've been denied coverage for homeowners insurance, what can I do?

If you have been denied coverage, or your coverage was not renewed or cancelled, your insurance company must provide you a written notice stating the reason. If your credit report or a CLUE report were used when the company made the decision not to give you coverage, the notice should clearly state that you have a right to get a free copy of your credit report or CLUE report. The notice should also explain how you can challenge information in your credit report or CLUE Report if you think it is wrong. If you are denied coverage, you should:

  • Find out why the coverage has been denied; you might be able to fix the problem.
  • Contact an independent insurance agent who can contact many insurers to find the best coverage and rates.
  • Find out the insurer of the last homeowner, or the insurer of a neighbor and contact that company for coverage.
  • Contact the lender providing the mortgage or the real estate agency representing the buyer or seller; sometimes they have a connection with an insurer.
  • If you feel that you have been denied unfairly, you can contact the Illinois Department of Insurance and complete and file a complaint form. You can also complete the complaint form online.

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What should I do if my home gets badly damaged?

If your home gets badly damaged, it is important to tell your insurance company as soon as you can.

You may be contacted by a "public insurance adjuster." These persons and companies are not employed by your insurance company. They will ask you to sign a contract with them that lets them negotiate a settlement of your claim with your insurance company for you. You have to pay for this, because the public insurance adjustor gets part of the settlement. DO NOT SIGN A CONTRACT WITH A PUBLIC INSURANCE ADJUSTOR UNLESS YOU BELIEVE YOUR INSURANCE COMPANY IS NOT OFFERING YOU A FAIR AMOUNT TO REPAIR YOUR DAMAGE!

If you sign a contract with a public insurance adjustor within 5 days of the event that caused damage to your home, Illinois law allows you to get out of that contract within 10 days. Also, the law does not allow adjustors to get contracts signed by homeowners while the fire department is still at the house or between 7:00 p.m. and 8:00 a.m..

When your insurance company pays your claim, make sure you hire a good home improvement contractor to make the repairs. Ask your neighbors if they have had a good experience with a contractor, and look at the work that was done. Once you learn of a good contractor, call the Better Business Bureau in your community  (Chicago: 312 832-0500) and ask what information they have about the company. NEVER PAY THE CONTRACTOR THE FULL AMOUNT OF THE CONTRACT UNTIL THE JOB IS DONE. 

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I sent in a claim and it was denied. What can I do?

You have 3 options:

  1. Find out if your insurance company has an appeal process. To find this out, ask your insurance broker or carefully read your homeowners insurance policy.
  2. You can file a complaint online with the Illinois Department of Insurance, or you can call the Illinois Department of Insurance at the
    Chicago office: (312) 814-2427 OR
    Springfield office: (217) 782-4515
  3. You can talk to a lawyer. Search the "Helpful Organizations" section below to find free legal help.

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What is a FAIR Plan?

If the major carriers have rejected you for coverage, your only option may be your state's high-risk pool or surplus-lines insurance company. Fair Access to Insurance Requirements, or FAIR Plans, are high-risk insurance pools provided in 32 states, including Illinois. In other states, surplus-line carriers provide coverage for higher risk properties, although at significantly higher premiums with higher deductibles. For more information about FAIR plans, contact the Illinois FAIR Plan Association as listed below.

Illinois FAIR Plan Association
P.O. Box 81469
Chicago, IL 60681-0469
(312) 861-0385
Fax: (312) 861-0485

Related links

Choice Trust Inc.
(866) 527-2600

Illinois Department of Insurance 
Chicago office: (312) 814-2427
Springfield office: (217) 782-4515

Privacy Rights Clearinghouse has a fact sheet on CLUE, and how insurers determine the rates they charge you

Insurance Services Office Inc. (ISO) has information on A-plus reports, sample report

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Helpful Organizations
The following organizations may be able to help you with foreclosure

For a list of organizations in your area that may be able to help you, enter your zip code.

       

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