When NOT to file a claim

The damage involves water or mold

Insurers are seriously spooked by a rising number of water damage and mold claims in several states. Consumers who make water damage claims risk losing their coverage, and may even find their homes blackballed, meaning that coverage is unavailable at any price.

That's because insurers are trying to steer clear of "problem" properties, using a central database known as the Comprehensive Loss Underwriting Exchange or CLUE. Nearly all insurers share claims information through CLUE, and they use the information in the database to decide whether or not to insure a home. Some companies are so sensitive about mold losses that even a single water damage claim on a house is enough for them to refuse coverage.

That does more than make it tough to buy a policy. It can also be a red flag for future buyers. If they have trouble getting a policy because of past claims, you may have a tough time selling your home.

The damage resulted from your neglect

You open your front door, step into your home -- and the floor collapses underneath your feet, thanks to termite damage.

This might seem the perfect time to use your insurance. But homeowners policies specifically exclude problems that result from pest infestations, rot and other indications that you've failed to properly maintain your home.

The insurer's viewpoint is that you should have detected the termites and had them exterminated long before they could eat through the structure of your home. Likewise, long-term damage from leaking roofs and faucets is usually considered preventable and not covered.

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You're also on the hook if you make a bad problem worse. If a windstorm blows off part of your roof and you leave the hole uncovered, you might lose coverage for contents that were exposed to further damage.

All this doesn't mean you can never use your insurance coverage. But using prudently, especially these days, will ensure it's there when you really need.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board and helps middle-class families cope at Building a Brighter Future.

Updated Nov. 4, 2009

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