Lender Placed Insurance

What is the process of obtaining force-placed insurance for commercial properties?

While lenders usually can get force-placed insurance once a commercial property’s insurance lapses, there are specific requirements that lenders normally must adhere to.

Lenders are typically required by law to issue a 45-day notice to the borrower, followed by a 15-day reminder. Only after these and the requisite time can lenders get coverage. Coverage is also subject to any specifics contained in a loan agreement, which might vary from one loan to another.

Because specific requirements must be adhered to, lenders may want to consult with an insurance agent who knows force-placed insurance well. An attorney might also be consulted before sending the first notification.

What types of perils does creditor-placed insurance provide?

Depending on a policy’s particular terms, creditor-placed insurance may protect against a variety of potential perils that could cause significant damage. For example, the following may be covered:

• Fire and smoke
• Theft and vandalism
• Wind and severe weather
• Lightning
• Other perils as detailed 

A knowledgeable insurance agent can detail exactly what a given policy would likely cover.

Are earthquakes covered by creditor-placed insurance policies?

Earthquakes are one peril that creditor-placed policies, much like standard commercial property policies, generally don’t protect against. While earthquakes are a notable risk in states like California, they aren’t a major risk in many states.

When it’s needed, such as for a financed property somewhere in California, earthquake coverage may be available through a separate policy. Having it as a separate coverage allows lenders to customize their policy according to the risks that are present where a property is located.

Are floods covered by creditor-placed policies?

Floods can be another major concern for properties near bodies of water, whether that’s the California coastline, the Mississippi River, or some pond or stream that could overflow.

As is the case with earthquakes, standard creditor-placed policies generally don’t cover flood damage. Coverage for flooding is readily available through creditor-placed flood insurance in most cases, though. 

Who pays the premiums charged for creditor-placed insurance on a commercial property?

The cost of lender-placed policies is generally passed onto the property owner. The lender may actually transmit payment to the insurer, but they normally collect payment from the property owner. The premiums are often added to the monthly loan payment, continuing until the borrower obtains the required coverage. 

If the property owner secures adequate insurance coverage, the lender is often obliged to cancel their creditor-placed policy within 30 days. Any excess premiums usually are refunded to the property owner.

How do claims against creditor-placed policies get filed?

Claims on lender-placed policies are typically filed by the lender with the insurance company underwriting the policy, as the policy is primarily for their protection. A knowledgeable insurance agent can assist with this process, which isn’t too difficult.