When you borrow money to purchase property, your bank has a financial interest in ensuring your home or car has adequate insurance to cover possible risks. Force placed insurance refers to a policy your lender obtains for you to protect its investment in your real estate.
Why Do Lenders Force Place Insurance Coverage?
There are several reasons a financial institution might acquire a policy for your property. Some possible situations include the following:
- You fail to promptly pay your monthly premium, resulting in a lapse of coverage or cancellation of your plan.
- Your current insurance does not provide sufficient security to mitigate potential monetary losses.
- You did not purchase coverage for your automobile or house.
- You fail to provide satisfactory proof of insurance protection to your lending company.
Who Pays for Force Placed Insurance?
When a financial institution takes out a policy on your property, you must pay the associated premiums. The bank adds the amount to your monthly mortgage payment. Keep in mind this type of coverage costs significantly more than a standard plan and offers no protection for your personal belongings, nor does it include personal liability coverage.
It is in your best interests to secure adequate insurance for your home and avoid this situation with your lender. Consult a knowledgeable agent to help you choose the policy right for you.