What is force-placed insurance?
Force-placed insurance, also known as “creditor-placed” or “lender-placed” insurance, is homeowners insurance purchased on your behalf by your mortgage lender to secure their investment. As the name implies, your lender can “force” their own insurance policy on your property if your homeowners insurance is canceled or your policy lapses. [1]
A mortgage company may do this because as the lien-holder, they have a financial interest in making sure that your home is adequately protected against damage from fire, windstorms, and other perils that could cause damage to your home.
How does force-placed insurance work?
With force-placed insurance, the lender pays the policy premiums up front and the balance is then added to your monthly mortgage bill. If you pay for property taxes, mortgage insurance, and homeowners insurance through your escrow account, your lender will likely streamline your payments from there.
Keep in mind that your monthly mortgage payment could increase significantly once your lender places insurance on your property.
How much does force-placed insurance cost?
Force-placed insurance costs around one-and-a-half to two times as much as a standard homeowners insurance policy, according to Assurant, a leading writer of lender-placed insurance policies. [2]
The average cost of homeowners insurance is $1,754 per year, so you could end up paying nearly $3,500 yearly for force-placed insurance. And in some situations, it could even cost ten times as much as standard homeowners insurance coverage, according to The National Consumer Law Center.
Why is force-placed insurance so expensive?
Lender-placed policies cost more because homes generally aren’t held to the same underwriting criteria as voluntary home insurance. Most force-placed insurance companies have an agreement with partnering mortgage companies to insure every lapsed property without conducting an inspection or analyzing the loss history of the home. Additionally, many homes are uninsured specifically because they’re located in natural disaster-susceptible areas where affordable insurance is scarce.
What does force-placed insurance cover?
Force-placed insurance is significantly pricier than insurance a borrower can purchase on their own, however the coverage itself is far worse. Policies are geared toward protecting the lender’s investment — not the homeowner. That means any personal belongings of the borrower — like clothes, furniture, jewelry, and electronics — aren’t covered by a lender-placed policy. Force-placed insurance doesn’t include personal liability coverage either, which is a crucial component in a standard homeowners policy.
How to remove force-placed insurance
If your lender places force-placed insurance on your property, here are a few things you can do.
Contact your loan officer or mortgage servicer. Ask your loan officer what you need to do to get your old policy reinstated. It’s possible that your lender placed insurance on your home by mistake, but even if that’s the case you should continue paying the policy premiums until the situation is resolved.
Gather documents. Once you have a new policy — or if you already had a policy and the force-placed coverage was purchased by mistake — gather all necessary documents, like a home insurance binder or declarations page, to send to your lender as proof that your home is covered.
Wait for cancellation of force-placed insurance. Once your lender has proof of adequate coverage on the home, they’re legally required by the Consumer Financial Protection Bureau to cancel your force-placed insurance within 15 days and refund any unused premiums.
How to save on homeowners insurance
To avoid a lapse in coverage or nonrenewal of your homeowners insurance, it’s important you have a policy you can afford. Here are a few ways you can keep homeowners insurance costs down.
Shop around. It’s recommended that you re-shop your homeowners insurance annually to make sure you aren’t missing out on a better deal elsewhere. Policygenius agents can help you shop multiple companies at once to compare quotes.
Ask about discounts. Most major insurance companies offer a variety of discounts, like discounts for installing safety features like burglar and fire alarms and for installing a new roof.
Consider bundling your home and auto policies. Another major discount most insurers offer is a multi-policy discount — sometimes up to 35% off.
Raise your deductible. The price of your deductible is directly related to the price of your homeowners insurance premiums. The higher your deductible is then the lower your premiums will be — just make sure you keep it at a price you can afford to pay in the event you need to file a claim.
