Force Placed Insurance

What is the process of obtaining creditor-placed insurance for residential properties?

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.

What perils does lender-placed insurance cover?

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:

• Smoke and fire
• Vandalism and theft
• Wind damage
• Severe weather
• Lightning
• Other noted perils

An experienced insurance agent can review precisely what a chosen policy would cover.

Is earthquake damage covered by lender-placed policies?

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. 

Is flood damage covered by lender-placed insurance policies?

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.

Who pays for lender-placed insurance when it’s needed on a house?

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. 

How are claims against force-placed policies filed?

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.