Everything You Need to Know About Force Placed Insurance

As a homeowner, you are required to have insurance to protect your property in case of a disaster. However, if you fail to maintain your insurance, your bank or mortgage company might take matters into their own hands by purchasing force placed insurance for you. This type of insurance can be costly and may not even provide adequate coverage. In this article, we will dive deeper into what force placed insurance is, how it works, and how you can avoid the need for it altogether.

What is Force Placed Insurance?

Force placed insurance, also known as lender-placed insurance, occurs when a mortgage servicer purchases insurance on a property owner’s behalf when they fail to maintain their own insurance coverage. This coverage is typically more expensive than what the homeowner would have been able to obtain on their own and may provide limited coverage. The cost of the insurance is passed on to the homeowner and added to their mortgage payment.

Force placed insurance is often used as a way for mortgage servicers to protect their interests in the property. Without insurance, the property could be at risk for damage or loss, which would affect the value of the mortgage servicer’s investment. Force placed insurance may provide coverage for hazards such as fire, wind, or flood, but it often includes exclusions and limitations that the homeowner may not be aware of.

How Does Force Placed Insurance Work?

If a homeowner’s insurance policy lapses or is cancelled, the mortgage servicer is required by law to ensure that the property remains insured. The servicer will typically send a notice to the homeowner requesting proof of insurance coverage. If the homeowner fails to provide proof of insurance, the servicer may purchase a force placed insurance policy on the homeowner’s behalf.

The cost of force placed insurance is usually higher than what the homeowner would have paid for their own insurance coverage. The servicer may also charge additional fees and interest for the cost of the insurance, which will be added to the homeowner’s mortgage payment. The homeowner may not be able to cancel the force placed insurance policy unless they can provide proof of their own insurance coverage.

Why Do Mortgage Servicers Purchase Force Placed Insurance?

The main reason mortgage servicers purchase force placed insurance is to protect their financial interests in the property. If the property is damaged or destroyed without insurance coverage, the servicer may not be able to recoup their investment. By purchasing force placed insurance, the servicer is able to protect their investment and ensure that the property remains insured.

Another reason mortgage servicers purchase force placed insurance is to comply with federal and state regulations. Mortgage servicers are required by law to ensure that properties remain insured, and force placed insurance is one way to meet this requirement.

What Are the Costs of Force Placed Insurance?

The cost of force placed insurance varies depending on a number of factors, including the location of the property, the type of property, and the amount of coverage needed. In general, force placed insurance is more expensive than what the homeowner would have paid for their own insurance coverage.

In addition to the cost of the insurance itself, the mortgage servicer may also charge additional fees and interest for the cost of the insurance. These fees will be added to the homeowner’s mortgage payment, making it more difficult for them to keep up with their payments.

Table 1: Average Cost of Force Placed Insurance

How Can You Avoid the Need for Force Placed Insurance?

The best way to avoid the need for force placed insurance is to maintain your own insurance coverage. Make sure that your insurance policy is up-to-date and that you are paying your premiums on time. If you are having trouble accessing insurance coverage, there are resources available to help you find affordable insurance options.

If you do receive a notice from your mortgage servicer requesting proof of insurance coverage, respond promptly and provide the necessary documentation. If you are unable to maintain insurance coverage for any reason, contact your mortgage servicer and work with them to find a solution that works for both parties.

FAQs

What is the difference between force placed insurance and regular insurance?

Force placed insurance is purchased by a mortgage servicer on behalf of a homeowner who has failed to maintain their own insurance coverage. Regular insurance is purchased by the homeowner to protect their property in case of a disaster.

Is force placed insurance required by law?

No, force placed insurance is not required by law. However, mortgage servicers are required by law to ensure that properties remain insured.

Can I cancel force placed insurance?

The homeowner may not be able to cancel force placed insurance unless they can provide proof of their own insurance coverage.

What should I do if I receive a notice from my mortgage servicer requesting proof of insurance coverage?

Respond promptly and provide the necessary documentation. If you are unable to maintain insurance coverage for any reason, contact your mortgage servicer and work with them to find a solution that works for both parties.

Are there resources available to help me find affordable insurance options?

Yes, there are resources available to help you find affordable insurance options. Contact your state’s insurance department or a licensed insurance agent for assistance.

Is force placed insurance a good option?

No, force placed insurance is typically more expensive and provides limited coverage compared to what the homeowner could have obtained on their own.

Conclusion

Force placed insurance can be costly and may not provide adequate coverage for your property. It is important to maintain your own insurance coverage to avoid the need for force placed insurance. If you do receive a notice from your mortgage servicer regarding insurance coverage, respond promptly and work with them to find a solution that works for both parties. By staying informed and proactive, you can protect your property and your financial interests.