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What Is Forced Placed Insurance?

When securing a mortgage on a property, many people feel it is easier to pay their own homeowner's insurance and property taxes when they are due. Therefore, they do not pay into an escrow account with the lender along with their mortgage payment. Usually, the lender will require an escrow waiver fee that will appear on the good faith estimate and HUD Settlement Statement to be paid at closing.

So what happens when the homeowner allows their homeowner's insurance policy to lapse? The lender is named on the homeowner's insurance policy as the mortgagee whether or not the insurance fees are escrowed. When the available amount of time has passed for payment of the insurance, the grace period, and no payment has been made, the policy ends and the lender is notified.

Since it is mandatory to have insurance when there is a mortgage on the property, the lender will place what is called a forced-placed insurance policy on the property. This is extremely expensive insurance and will be billed to the homeowner each month with their mortgage payment. The worst part about this is that it only insures the lender, not the homeowner or their personal property. In the event of an injury, robbery, damage, any catastrophe, the homeowner is not covered. Not many people area aware of the rules of a forced placed insurance.

Another obstacle in allowing your homeowner's insurance to lapse is that it becomes difficult to obtain a new policy. Insurers will look at you like a high risk since you let the other policy go. They will think that something has happened for which you need to put in a claim and that is why you are buying the insurance. It is vital to get new insurance within 30 days of allowing the policy to cancel.

Homeowner's insurance is a serious issue that must be taken serious by homeowner's. Never allow yourself to be in the position where a forced-placed insurance policy is placed by the lender which eliminates any claim you may have. It is always better to be safe than sorry.


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