Most mortgages, whether commercial or residential, require the property owner to maintain at least enough insurance so that the lender’s exposure is protected. Should a property owner fail to meet this obligation, there’s force-placed insurance.
Force-placed insurance helps protect the lender’s interest in a financed property when the owner lets insurance lapse. Policies are available for residential homes, and also commercial properties.
Lenders generally can only get creditor-placed insurance when a homeowner doesn’t have the insurance required by their mortgage. In these situations, force-placed may provide protection for the lender.
This most often happens when a homeowner doesn’t renew their insurance, has their insurance non-renewed by the insurer, or simply doesn’t pay their premiums. Switching insurers and some other situations can also lead to accidental lapses in coverage.
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To put creditor-placed insurance in place, lenders generally must follow specific legal requirements. These usually involve issuing a 45-day notice to the homeowner, followed by a 15-day reminder, and only obtaining creditor-placed coverage afterward.
If a homeowner reinstates their insurance during the 45- or 15-day period, the lender normally can’t get creditor-placed coverage (nor do they need it in most cases).
When a homeowner reinstates their insurance so that the minimum required coverage is in place, lenders normally have to cancel the creditor-placed coverage within 30 days. Any premiums collected but not applied to the policy usually must be refunded within this time, too.
In light of the legal requirements that lenders must follow, they may want to work with an attorney when pursuing creditor-placed insurance. An insurance agent who works with creditors, and is knowledgeable about creditor-placed coverage, should probably be consulted as well.
Lender-placed insurance typically covers a range of common perils that could cause extensive damage. While exact protections can vary, these policies often protect against:
An experienced insurance agent can review precisely what a chosen policy would cover.
Standard lender-placed policies usually don’t include coverage for earthquake damage. In areas with high earthquake risks, such as California, separate earthquake coverage may be available.
Flood damage likewise typically isn’t covered under standard force-placed policies. For properties at risk of flooding, such as along a California coastline or near another body of water, separate lender-placed flood insurance might be used.
An insurance agent who’s familiar with lender-placed policies should be able to assist with earthquake and flood coverage.
The cost of lender-placed insurance is normally passed onto the homeowner. While the lender might initially pay the insurer, the lender may then seek reimbursement from the homeowner. This is most often done by adding the lender-placed coverage premiums onto a homeowners monthly mortgage payment.
When a homeowner reinstates sufficient insurance coverage, the lender frequently must return any premiums that were collected but are no longer needed for coverage. The lender-placed coverage generally must be canceled within 30 days of the homeowner obtaining coverage.
When there’s substantial damage, lending institutions are usually the party that files a claim against a force-placed policy. This is because it’s the lender that the policy is intended to provide protection for.
A knowledgeable insurance agent can walk lenders through the process of actually filing a claim with a specific insurer.
For assistance finding force-placed insurance for residential properties, contact the agents at QuieTrack Insurance Services. Our agents have worked with many lending institutions, and we’re ready to assist you with securing a solid force-placed policy on any properties your institution might have financed.