Force-Placed Insurance

If you do not have the appropriate hazard insurance, your mortgage servicer will purchase it on your behalf. Lenders may also need flood insurance if you live in a flood zone and do not have enough coverage. 

Force-placed insurance is often far more expensive than standard home insurance policies. It frequently covers your home’s physical structure but not your personal goods or liability, so you’re paying more for less protection. 

This type of insurance may also be called creditor-placed insurance, lender-placed insurance, or collateral protection insurance.

How does force-placed insurance work?

When you take out a mortgage, the lender will require that you obtain homeowners insurance. This provides financial protection for the company in the event that your home is damaged or destroyed.

Typically, a lender would purchase force-placed insurance if it deems you do not have enough home insurance or no coverage at all. There are a few reasons why this might happen: 

• You canceled your home insurance coverage.
• You let your home insurance coverage lapse.
• Your home insurance coverage does not meet your lender’s minimum standards.

How your lender will notify you about force-placed insurance

Your loan servicer cannot obtain force-placed insurance for you without your knowledge. It is obligated by law to give you written notice at least 45 days before it begins charging you for the force-placed insurance premium. 

The initial notice must provide particular details:

• Date of the notice.
• Servicer’s name, mailing address, and phone number.
• Borrower’s name and postal address. 
• A request that you present proof of proper insurance.
• The reason your servicer is considering forced insurance (such as expired or insufficient coverage).
• Detailed instructions on what insurance information is required and how to submit it.
• A remark stating that force-placed insurance could be “significantly more expensive” and potentially provide less coverage than a policy purchased independently. 

If the servicer does not receive proof of insurance from you after the first notification, it is legally compelled to send you another notice. This reminder is delivered at least 15 days before you are charged for force-placed insurance. This is your final notice to provide proof of your insurance coverage.

If the servicer does not get the requisite proof within this time frame, it may proceed with charging you for force-placed insurance.

How to get rid of force-placed insurance

If you have force-placed insurance, you can remove it by following these steps:

• Continue making payments. First and foremost, keep up with your mortgage and any forced insurance payments. Not paying could result in foreclosure. 
• Contact your insurance carrier. If your coverage has lapsed, contact your insurance company. Determine whether your policy may be reinstated or, if not, what steps you must take to obtain new coverage.
• Shop for a new policy. If reinstatement is not an option, or if you did not have a policy to begin with, you will need to look into house insurance. Compare prices and coverage options from at least three insurers to discover a policy that meets your mortgage requirements.
• Consider FAIR plans. If you’re having trouble receiving insurance because of your property’s location or condition (for example, being in a high-risk area for natural catastrophes), consider FAIR (Fair Access to Insurance Requirements) policies. These state-mandated insurance pools are intended to offer coverage where traditional insurers would not.
• Obtain proof of insurance for your lender or servicer. Once you’ve obtained a policy, send it to your mortgage servicer with a request to terminate the force-placed policy. It then has 15 days to cancel your policy after receiving your documentation. 
• Confirm cancellation. After presenting documentation, your service provider should cancel the policy. If there was a time when your own insurance overlapped with the force-placed insurance, your servicer must reimburse you for the overlapping coverage.