The topic of force-placed insurance has made the news now more than ever, causing some government agencies to look into this program which has been operating “Under the Radar” for years.
What is force-placed insurance?
In short, force-placed insurance (also known as lender-placed insurance) is a tool used by banks and mortgage companies to protect their interest in your home when you fail to renew your home insurance policy. Many folks think that just because they forgot to pay their home insurance and the bank says they have taken out a policy for them, they have coverage. This could not be further from the truth.
Why you should be concerned
Force-placed insurance protects only the lender’s interest in your property. It does not give the home owner any coverage for the building, contents or even liability. The problem starts when your bank fails to receive a copy of your home insurance renewal. The bank may recognize this as a lack of coverage, and they activate a force-placed policy and add it to your monthly payment. We see this occurring more often as a result of a change in lenders — the old lender does not notify the borrower or the insurance company/agent that the loan has been sold.
In addition to the problem of lost coverage, lender-placed coverage can be 2 to 10 times more expensive than standard home insurance. You can see how these policies impose a huge burden on distressed property owners. Government agencies are only now finding out that these questionable practices by the lending industry may be due to the lenders receiving sizable commissions for policies placed on their loans.
How do you protect yourself?
There are a few steps you can take to protect yourself from this dangerous and expensive force-placed insurance coverage:
- Review your current coverage and make sure that it is adequate for the size loan that you have on your property. We suggest you review it yearly to make sure it provides you with the coverage you need.
- If you have been notified that your loan has been sold to another lending institution, don’t assume that your home insurance company has been notified. Contact your agent when the loan has been sold so they know which mortgage company should be billed for the coverage.
- If you are responsible for paying the home insurance premium, please try to pay it before it is due. Banks do receive notices of cancellations and may take action quickly to cover their interest in the loan if they feel it necessary.
If you have any questions regarding force-placed insurance, have received a notification that your loan has been sold and are unsure what to do next, are unsure if you already have force-placed coverage, or are interested in obtaining homeowners insurance from the Protection Team at Hauswirth & Sons Insurance, please do not hesitate to contact us, toll-free, at 877-329-3261. We always keep your best interest in mind, and will make sure you always receive the best possible coverage at the lowest possible price. Give us a call today!