Homeowners with a mortgage are generally required to maintain property insurance that meets the requirements of their loan. If that coverage expires, is canceled, or becomes insufficient, a mortgage servicer may obtain insurance for the property and charge the borrower for it.
This is known as force-placed insurance, or lender-placed insurance. It can cost significantly more than insurance you obtain yourself and may provide less coverage, making an insurance lapse an expensive problem for homeowners.
What Is Force-Placed Insurance?
Under federal mortgage servicing rules, force-placed insurance generally refers to hazard insurance obtained by a mortgage servicer on behalf of the owner or assignee of the loan to insure the property securing the mortgage.
A servicer may consider force-placed coverage when it has a reasonable basis to believe that the borrower has failed to maintain the hazard insurance required by the mortgage contract. This can happen after a policy expires, is canceled or non-renewed, or no longer provides sufficient required coverage.
Why Can Force-Placed Insurance Be So Expensive?
Federal regulations specifically warn borrowers that insurance purchased by a servicer may cost significantly more than hazard insurance purchased by the homeowner. It may also provide less coverage.
For example, lender-placed coverage may primarily protect the lender's financial interest in the property and may not provide the same protection for personal belongings or liability that you expect from your own homeowners policy.
Instead of assuming force-placed insurance will cost two or three times your previous premium, review the actual amount disclosed by your servicer. The cost depends on the property, coverage, insurer, and circumstances.
What Happens Before a Servicer Can Charge You?
Federal Regulation X establishes procedures mortgage servicers generally must follow before charging a borrower for force-placed insurance.
A servicer generally must send an initial written notice at least 45 days before assessing a force-placed insurance premium or fee. If the required insurance information is still not received, the servicer must also provide a second reminder notice within the required timeframe before charging the borrower.
These notices should explain that the servicer does not have evidence of sufficient insurance, request proof of coverage, and warn that lender-purchased insurance may cost significantly more and provide less coverage.
How Can You Prevent Force-Placed Insurance?
The simplest strategy is to make sure your homeowners insurance remains active and that your mortgage servicer has current evidence of coverage.
- Review insurance renewal and non-renewal notices promptly.
- Make sure premiums are paid by the required deadline.
- Verify that your servicer has current insurance information.
- Update your servicer if you change insurance companies.
- Review mortgage statements for unexpected insurance charges.
- Respond quickly to any notice stating that proof of insurance is missing.
Florida homeowners should pay particular attention to renewal notices because insurance availability, premiums, deductibles, and coverage requirements can change. If your insurer will not renew your policy, begin searching for replacement coverage before the existing policy expires.
What Should You Do If Force-Placed Insurance Is Added?
Act quickly. If you do not have sufficient homeowners insurance, contact an insurance professional about obtaining a new policy or reinstating eligible coverage.
Once acceptable coverage is in place, provide your mortgage servicer with the requested evidence. This may include a policy declaration page, insurance certificate, policy, or another acceptable form of written confirmation.
If you already had qualifying coverage and believe the force-placed insurance was added incorrectly, provide evidence showing the dates your insurance was active and contact the servicer to dispute the charge.
Can You Get a Refund for Overlapping Coverage?
Federal rules provide important protections when a borrower demonstrates that qualifying hazard insurance was in effect during a period covered by force-placed insurance.
After receiving evidence establishing that the borrower had the required coverage, the servicer generally must cancel the force-placed insurance within 15 days and refund force-placed insurance premiums and related fees charged for periods when the borrower's own coverage overlapped.
Keep copies of your policy documents and correspondence with your insurer and mortgage servicer in case you need to establish continuous coverage.
Do Not Ignore an Insurance Notice From Your Mortgage Servicer
An insurance notice from your mortgage servicer may seem routine, but ignoring it can become costly. Even if you believe your homeowners policy is active, the servicer may simply be missing updated proof of insurance.
Contact the servicer using verified contact information, determine exactly what documentation is needed, and provide it promptly. Resolving an insurance documentation problem is generally easier than dealing with force-placed insurance charges after coverage has already been obtained.
The Bottom Line
Force-placed insurance exists to protect the property securing a mortgage when the servicer does not have evidence that required insurance is in place. For homeowners, the major concern is that this coverage may be substantially more expensive and may provide less protection than insurance purchased independently.
Keep your homeowners insurance current, respond quickly to renewal or cancellation notices, and make sure your mortgage servicer has accurate evidence of coverage. Those simple steps can help prevent an avoidable insurance expense.
If you are buying or refinancing a home in Florida, Loan Wolf Lending can help you understand how homeowners insurance and other property expenses factor into your mortgage. Call 754-755-3075 to discuss your financing options.