Force-placed insurance is aptly named, as it describes insurance your creditor requires you to pay when your original policy lapses or isn’t comprehensive enough. Known by several other names such as lender-placed insurance, creditor-placed insurance and collateral protection insurance, its purpose is simply to offer more protection.
Just like your mom forced you to bundle up before going out in the cold as a kid, your mortgage or loan company requires you to properly protect the asset they’re helping fund. It may be a bit of a pain, but you’ll be thankful once the snow starts to fall that you have the protection you need. Of course, you can bundle up on your own accord (and that’s recommended). But if you don’t get a winter coat in time or your current coat doesn’t stack up, you may find yourself with cold fingers and a requirement to pay for a force-placed insurance coat.
Force-placed insurance allows creditors or lenders to select an insurance policy for their customers if their policy has lapsed or doesn’t fully protect their home (for example, if your dwelling coverage limit isn’t equal to or greater than the value of your home). Typically, your lender will send you notice of your inadequate coverage and give you time to update your own policy.
However, some mortgage companies will simply purchase a policy for you, keeping you in the dark until you receive your insurance statement. That’s why it’s so important to make sure your purchased policy is up-to-date and meets your lender’s standards so that you don’t face any surprises later on.
Since your lender gets to choose the insurance policy for you, they don’t have to provide you with the amount of protection you’d prefer for things like home contents or liability. They can even omit those portions of your policy entirely since they may only focus on protecting their asset (your home’s structure).
They can also expand that dwelling protection limit to whatever number they deem necessary, significantly increasing the amount of money you have to pay for your premiums (either out of pocket or via your escrow account).
If your mortgage lender “forces” insurance on you, you are required to pay it. If it does happen to be a mistake — say you changed home insurance companies but your mortgage company isn’t aware — you can show proof that your coverage never lapsed to get the forced policy removed and the money you paid refunded. But until it’s confirmed, it’s required for you to pay for your new insurance policy to make sure your home is properly protected.
If the reason for your force-placed insurance policy is because your previous company dropped you, you may find it challenging to get a new policy. Whether you filed a lot of claims within a short period or didn’t pay your premium on time, there are several reasons an insurance company can drop someone’s policy. But thankfully, there are ways for you to get back in good standing.
First, make sure to show a string of on-time payments for your force-placed insurance policy. This will demonstrate to other insurance companies that you’ll be a reliable customer. If you’ve had many claims within the last few years, you may have to increase your dwelling or personal property coverage limits to get a new policy. Finally, understand that it takes some time, so you may have to stay with your force-placed policy until you can establish a better claim or payment history.
Mortgage insurance, home insurance, force-placed insurance … there are lots of insurance terms out there, and it’s no surprise if you get them confused. That’s why it’s so important to have an insurance company that’s easy to get a hold of so that you can get answers to all of your questions whenever you need them. Don’t think your current insurance company makes the cut? Contact us to see just how dedicated a customer service team can be.
If you find yourself stuck with force-placed insurance, you can get it removed (but it’ll likely take some time). First, you should contact a variety of insurance companies to find the one that provides you with the best protection. Once you have a new policy purchased, send proof to your mortgage company and ask them to cancel your force-placed policy.
As long as there are no lapses between your force-placed policy and your new policy, you should be good to go. If your mortgage company used your escrow account to pay your force-placed policy, you could ask for a reimbursement either sent via check or put back in your escrow account.
If you find yourself stuck with force-placed insurance, you can get it removed (but it’ll likely take some time).
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