Has your lender recently informed you that they’re planning on imposing force placed insurance on one or more of your insurance plans? If so, you may be interested to learn what the purpose of this insurance might be. Take a look at some of the most common reasons lenders may choose to place this specific coverage type.
The Force-Placed Insurance May Be Necessary To Mitigate Common Lending Risks
In situations of high risk to the lender, some lenders may decide to force-place insurance to help guarantee that a minimum amount of coverage is in place. A few of the top reasons lenders have to force-place insurance include mitigating the risks of, or compensating for:
- Policy cancellation or expiration
- Policy lapses and gaps
- Coverage withdrawal by the insurer
- Natural or structural risks to the insured property
- Missed homeowner payments
Your Lender May Choose To Offer Replacement Coverage
If you’ve had insurance force-placed, ask your lender whether the policy includes replacement coverage. Depending on the specific policy, the lender may receive:
- Coverage in the event of property destruction
- Insurance for whatever amount is owed to the lender
- Protections for losses due to natural disasters
When it comes to force-placed insurance, understanding your lender’s motivation may help you determine what you need to do to maintain the appropriate insurance coverage. You can review these quick facts to gain some insight.