Are home insurance claims public record?

Posted By Dick Law Firm || 13-Oct-2020

Are home insurance claims public record?

In general, only the parties concerned have access to the full and revised homeowner's insurance record. The policy owner and insurance provider are the parties involved in this situation. Both parties are protected by statute for their right to access insurance information under the F.A.C.T. Act. If interested parties want to access the record, the interested party may request a policy copy. Insurance firms have no right to reveal details to unrelated parties, except as authorized by regulation.

F.A.C.T.

Each policyholder is allowed to request a free copy of their insurance policy annually under the Fair and Accurate Credit Transactions Act. This act, also known as the FACT Act, manages and controls who can obtain insurance details.

C.L.U.E.

Maintained by Lexus Nexus, the Comprehensive Loss Underwriting Exchange or CLUE is a database that records past claims made by insurance customers. This helps insurance firms keep track of each client's damages to examine one's claim history further. With this database information, insurers may assess the risk involved when dealing with a particular customer.

Overall, for five years, CLUE will hold details on their servers. The details contained in the CLUE database will include the client's social security number, property address, and any additional data on the homeowner's insurance claims.

Since the CLUE database includes details that could raise one's insurance premium, federal law requires the policy owner to dispute the information found here. This means the insured should also have access to the CLUE database, if applicable. CLUE database information can impact a policyholder's insurability. The insurance owner may also challenge any misleading or inaccurate details found on the CLUE database.

Thus, the insurance policy may be viewed as a public document. This is because this can be published on request to prospective homebuyers. However, only the insurance policyholder and the insurance provider will issue the CLUE copy to the realtor or buyer. Only the insured agrees to release this detail.

CLUE's value to various parties

Insurance Firms – The CLUE database will help insurance companies recognize threats while insuring a homeowner. Since the database provides details on the insured's claims, it will help the insurance provider determine if the policy would be too costly for them to accept.

Potential homebuyers – When you sell your house, the potential homebuyer will want to know the property's harm. Because insurance claims are subject to insurance company approval, it will show whether the homeowner is vigilant in maintaining the house. This will also encourage them to take a closer look at the actual home they want to purchase.

Are home insurance claims taxable?

If a storm has destroyed your deck or a thief took you television, your homeowners' insurance policy will help dig you out of the catastrophe. But can you set aside money to pay federal income taxes? Generally, casualty insurance proceeds are not considered taxable profits, so you don't have to think about the bill. However, the situation can vary whether you benefit from the insurance claim.

How does property insurance work?

Homeowners insurance covers for the loss. If you're compensated for the danger such as a fire, burglary, or tornado, then you can demand compensation for the same amount you lost. If you lost a laptop and a diamond ring, you will pay for the computer and a diamond ring. If the kitchen is destroyed in a fire, the insurance settlement will pay for a new kitchen and any repairs, plastering, and painting required to restore the kitchen to the way it was before the fire. Making you financially whole again following an insurance incident is known as a payout.

Is the insurance benefits taxable?

Since you don't benefit from insurance payout, you have no taxable profits. As long as you collect the correct amount of money to repair the damage or replace stolen goods, you need not report the settlement to the Internal Revenue Service.

How you invest payout is up to you. For example, if you obtained a payout for a stolen laptop, you need not purchase another computer. Regarding the I.R.S., how you spend money doesn't matter. What counts is that you got a check referring to the laptop's value and making no transaction benefit.

What if you benefit from the payout?

There's only one scenario where insurance coverage is taxable, and that's if the payout reaches the initial cost of the property destroyed. This isn't as odd as it sounds because your home's value has risen considerably. After all, you purchased it. For example, you may have bought your home for $75,000 20 years ago, but it's worth $200,000 and insured for that price. If the house is lifted to the ground by fire, your coverage would far surpass the property's original expense.

To decide if you have an unintentional conversion benefit – that's I.R.S. jargon for a benefit exceeding the property's original value – you'll need to measure the adjusted basis of what's been damaged or stolen. For example, with your house, the basis is the purchase price plus major renovation costs. A $75,000 house with a $15,000 kitchen remodel would cost $90,000.

If the insurance company charged you $200,000, you have a $110,000 taxable benefit. You will need to record this income benefit on your Form 1040 in the year you got insurance money and pay taxes at the regular income tax rate.

Exclusions involuntary conversion

In the case of involuntary transfer benefit, the Internal Revenue Code offers two taxpayer-friendly ways to reduce tax liability. The first is the residence exemption. If your primary home was damaged or demolished and you lived there for at least two of the five years before the insurance case, you can deduct $250,000 in insurance earnings ($500,000 if you file together). This law is exactly like selling your primary residence.

If you purchased your home 20 years ago with an updated $90,000 basis, but the insurer cut you a check for the home's fair market value of $200,000, due to the primary residence exemption, despite the $110,000 benefit, you have no tax liability.

The second choice is a gain-deferral election. If you use your insurance check to replace the damaged property with similar property, the involuntary conversion benefit should be postponed before selling the new stuff. This rule is beneficial when, for example, compensation applies to an investment property, and primary residence exclusion does not apply.

The immediate consequence of making a deferral election is to minimize your taxable benefit in the year you collect the payout. Deferring the use means you only pay tax on the insurance proceeds sum that exceeds what you spend on buying the damaged object. The substitute must be apples-for-apples – if you buy a factory after a townhome burns down, you can't postpone the benefit. You must also acknowledge the replacement under a strict period, starting on the date of the casualty incident and finishing two years after the end of the tax year you got your insurance check.

What if you obtain a lower-than-expected settlement?

In some instances, the settlement could be smaller than the amount you spend on fixing or replacing the defective object. For example, when equipment is harmed, insurance coverage rarely reaches the purchase price as computers, televisions, and the like depreciate over time. That means no taxable income, and there may even be a loss of insurance.

In principle, I.R.S. regulations allow you to assert an itemized deduction for uninsured casualty losses. In fact, due to two new rules, you do not qualify for the deduction: First, you must subtract $100 from the loss sum, which is no big deal. Second, you must deduct from the casualty loss a sum equal to 10% of your adjusted gross income. The tax deduction applies to the remaining number.

Here's an example: Suppose you get a $30,000 insurance payout at home for a robbery, but the original stolen items cost $40,000. That's a $10,000 casualty loss—your $100,000 AGI. Your deduction is $10,000 casualty loss minus $100 minus $10,000 (10% of your AGI), resulting in a negative figure. No write-off for the loss in this case.

If the hypothetical loss was $20,000, you might demand a deduction of $9,900 ($20,000 minus $100 minus $10,000).

Unique disaster laws

If you were unlucky and lost property in a federally declared catastrophe like Hurricane Harvey, Irma, Maria, or California wildfires, then the casualty costs should be viewed more favorably. The $100 reduction rises to $500, but not the 10 percent of your A.G.I. cap. You will subtract any of the damages not covered by insurance exceeding $500.

You can assert eligible losses on Form 4684, I.R.S. Publication 976, Disaster Relief, provides more detail on qualified disasters and coverage areas.