Understanding Forced Placed Insurance in Layman’s Terms

Have you ever heard of forced placed insurance? Most homeowners have no idea what it means or how it can affect their finances. In this article, we’ll explain what forced placed insurance is, why it’s used, and how to avoid it.

What is Forced Placed Insurance?

Forced placed insurance is a type of insurance that is placed on a property when the homeowner’s insurance policy lapses or is cancelled. The lender or servicer will then purchase an insurance policy on behalf of the homeowner to protect their interest in the property. This type of insurance is often more expensive than a standard homeowners’ insurance policy and offers less coverage.

When a homeowner defaults on their mortgage, the lender or servicer may also force place insurance on the property. This ensures the property is protected while the lender or servicer works to resolve the default.

Why is Forced Placed Insurance Used?

Forced placed insurance is used to protect the lender or servicer’s interest in the property. The lender wants to make sure that their investment is protected in case of a loss. By force placing insurance, they can ensure that the property is always insured.

Forced placed insurance is also used to ensure that the property is not uninsured. If a homeowner’s insurance policy lapses or is cancelled, the property is at risk. If a disaster occurs and the property is not insured, the lender or servicer could be left with a loss.

How Much Does Forced Placed Insurance Cost?

Forced placed insurance is often more expensive than a standard homeowners’ insurance policy. The cost will vary depending on the insurance company, the property location, and the amount of coverage needed. However, the homeowner is responsible for paying the cost of the insurance policy.

How Can Homeowners Avoid Forced Placed Insurance?

Homeowners can avoid forced placed insurance by maintaining their own insurance policy. It’s important to make sure that the policy is up-to-date and that the coverage meets the lender’s requirements.

If a homeowner is having trouble affording their insurance policy, they should talk to their insurance company about payment options or look for a policy with a lower premium. It’s also important to communicate with the lender or servicer if there are any issues with the insurance policy.

FAQs

The Bottom Line

Forced placed insurance is a type of insurance that is placed on a property when the homeowner’s insurance policy lapsed or is cancelled. It’s important for homeowners to maintain their own insurance policy to avoid forced placed insurance, which is often more expensive and offers less coverage. If you’re having trouble affording your insurance policy, talk to your insurance company about payment options or look for a policy with a lower premium.