Force Placed Insurance
What Is Force Placed Insurance?
Force placed insurance, also called lender-placed or creditor-placed insurance, is an insurance policy your mortgage lender, bank, or loan servicer purchases on your behalf. Your lender will only take this measure if your own home insurance is cancelled, has lapsed, or offers insufficient coverage.
Force placed insurance isn’t cheap – often, it’s more expensive than a policy you could purchase on your own, and the coverage may be hazard insurance only. Regardless, you will be required to pay the lender for the policy they take out on your behalf.
Why would a lender take this step? In short, your mortgage lender wants you to keep home safe – after all, they have a vested interest in your property. If you default on your loan, the lender has the right to foreclose on it. One way lenders ensure the well being of their investment is to require you to have homeowners insurance.
When Can a Mortgage Lender Buy Force-Placed Insurance?
These situations might prompt your lender to buy a policy for your home without your input:
- You don’t have homeowners insurance.
- Your homeowners insurance policy lapsed and you haven’t bought a new policy.
- Your current policy was cancelled due to nonpayment.
- Your insurer declined to renew your policy and you haven’t bought a different policy.
- Your lender hasn’t received proof of insurance coverage even though you have a policy in place.
- You have homeowners insurance, but the coverage, deductible, or amount coverage doesn’t meet your lender’s requirements.
How Force-Placed Insurance Hurts Homeowners
Force-place coverage can put a homeowner who is already struggling financially even further behind. That’s because force-placed insurance is usually expensive as is, and the lender usually increases monthly mortgage payments to cover the cost of the insurance.
But expense isn’t the only drawback to force-placed insurance. This policy often provides less coverage than standard homeowners insurance. While it does protect your dwelling for hazards like fire, windstorms, and vandalism, it usually won’t cover your personal belongings, furnishings, appliances, or personal liability.
In a nutshell: force-placed insurance is more expensive and offers less protection than a standard homeowners insurance policy.
Yes, Lenders Must Notify You before Buying Force-Placed Insurance
Mortgage lenders and loan services are federally required to notify you twice before buying force-placed insurance:
- First notice: 45 days before it buys the coverage
- Second notice: 30 days after the first notice and at least 15 days charging you for the coverage
Once the lender gets proof of your coverage, they must cancel the force-placed policy and refund you the cost of the policy for any period of overlapping coverage within 15 days.
What to Do If Your Lender Bought Force-Placed Insurance for Your Home
If your lender bought force-placed insurance in error, notify them immediately. They are required by federal law to cancel the policy within 15 days.
If your lender bought a force-placed policy because you don’t have your own coverage, get your policy reinstated or a new policy in place as soon as possible. Once you have proof of coverage, send it to your servicer and request a cancellation of the policy they obtained for you.
If your insurance policy was cancelled because your lender failed to pay your premium through your escrow account, you have grounds for a dispute. Usually, this means you send a formal letter – a notice of error – along with the insurance bill to your servicer. They must acknowledge receipt of the notice within five business days, correct the error in 30 business days, and cover the cost of penalties.