Lender placed insurance coverages protect a bank’s financial interests by forcing a policy when the borrower has inadequate coverage or does not have insurance at all.
How Does a Forced Placed Policy Work?
Mortgages and auto loans require you to have sufficient coverage on the property or vehicle. When you fail to obtain coverage or lets your current plan lapse, the bank can arrange an insurance policy at your expense.
This type of insurance protects a creditor’s investment by covering associated risks. It works the same as any other policy but may not have as many safeguards to protect you personally.
When Do Banks Require Lender Placed Insurance Coverages?
You may have to pay for this type of protection in the following instances:
- You did not obtain a homeowners policy.
- You did not pay the monthly premiums, resulting in a cancellation.
- Your current insurance does not meet the bank’s requirements.
- You failed to demonstrate proof of insurance to the lender.
How Much Does Force Placed Insurance Cost?
This coverage is typically rather expensive. A banker adds the amount to your mortgage payment to cover the cost. In addition to being more costly, these policies do not offer as much protection as a homeowners policy.
Financial institutions have the right to require lender placed insurance coverages to protect their investments.