Getting a mortgage and being a homeowner can get complicated. There are a lot of details (and a lot of paperwork) that go into buying a home…and one of those things is home insurance. See, if you have a mortgage, you may be required to carry certain levels of insurance for your house (call it a caveat.) If you don’t get the necessary coverage, you might get stuck with force-placed home insurance. What’s force-placed home insurance? We’ll explain.
What is force-placed home insurance?
Okay, hold onto your hats.
Force-placed home insurance is insurance that a bank or lender gets for you if you either don’t have home insurance or don’t have home insurance that meets their requirements. When we say gets for you, we mean that they put the policy in place…and then make you pay for it. (They’ll usually stick you with the bill by adding the cost to your loan payments.) So, yeah, it’s not a freebie.
Wait, can they do that?
Yes. Yes, they can.
Here’s the deal:
Most mortgages require the homeowner (a.k.a borrower) to have a certain level of home insurance for the house. And if that doesn’t happen, most mortgages allow for the lender to buy home insurance for the dwelling…and then, as we said, send the homeowner the bill. It’s so they can protect their investment in the home.
Now, the lender should give you a heads-up before this happens so that you have the chance to get new insurance or adjust your limits before they take matters into their own hands. You might be able to scramble and get coverage in place before they act, and you might want to. Force-placed insurance can be very expensive. It also doesn’t include as much coverage as you would get from a normal home insurance policy – for example, it probably won’t include any coverage for your personal belongings or your liability.
So, generally, you probably want to stay away from force-placed home insurance if at all possible. Just as a rule of thumb.
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Why would a lender give you force-placed insurance?
There are a few possible situations that could result in force-placed insurance.
1. The lender doesn’t have proof of coverage with your lender shown as the mortgagee.
The lender has to be listed on the policy – it makes them all official.
2. The property owner does not have insurance.
This could happen if:
- Well, they didn’t buy any.
- They were canceled or non-renewed.
- The policy expired because the renewal premium did not get paid.
(Anyways, let’s pause for a brief moment to make a point: if your home insurance is canceled or non-renewed, be sure to get new coverage in place ASAP. Yes, it might be a drag, but you could end up in hot water with your lender if you try to cruise by without home insurance.)
3. The homeowner doesn’t have the right insurance.
If you don’t have enough insurance, the property coverages, and an appropriate home insurance deductible, the lender isn’t going to be impressed. Make sure your coverage meets the requirements of the loan to avoid an insurance meltdown.
How to avoid having force-placed insurance put on your home.
So, force-placed insurance doesn’t sound too great and you’d prefer to stick to the normal insurance market. Here are some tips to help you steer clear of that situation.
1. Make absolutely certain that your home insurance fulfills all of the lender’s insurance requirements.
2. Double-check that your policy lists the lender as the mortgagee and gives the lender’s correct name and address. Typos or mistakes aren’t good.
3. Secure new home insurance straight away if you’re canceled or non-renewed. Then give the lender proof of the new policy with them listed as the mortgagee.
4. If you have an escrow account for your mortgage, home insurance, and so on, keep an eye on your statements from the lender. Check that your home insurance is being paid properly out of the escrow account. And when the policy renews, as policies have to do, make sure that the renewal policy lists your lender as the mortgagee. Check that your premium is being billed to the lender.
So, that’s the deal with force-placed home insurance. Because it tends to be pricey and a bit thin on coverage, you probably want to avoid a situation where you’re stuck with it. Moral of the story: get the insurance that’s required by your lender – and spare yourself a headache.
Need to get some quotes for insurance that will satisfy your mortgage requirements? We can help. All you have to do to get home insurance quotes is fill out our online quote form or give us a call today.
Source:
https://www.naic.org/cipr_topics/topic_lender_placed_insurance.htm
https://www.scc.virginia.gov/boi/pubs/fp_ins.pdf
https://www.nolo.com/legal-encyclopedia/what-force-placed-insurance.html