Homeowner's insurance is a concept that is familiar to almost everyone who owns their home--most homes are covered by such insurance. The vast majority of the time, homeowners choose their own insurance carrier and policy, even if their insurance payment is escrowed in a mortgage. Sometimes, however, individuals are faced with a lender threatening to institute force-placed insurance on their home. While this may sound like just another insurance policy, this is far from the truth.
What is Force-Placed Insurance?
Whenever you take out a loan to purchase a home, your lender is going to require that you maintain an insurance policy to cover losses in the event that your property is damaged or destroyed by a flood, fire, or other disasters. Your insurance policy will pay to rebuild or repair your home and will likely cover your personal belongings that were destroyed as well.
If your lender or loan servicer does not think that you have an insurance policy, you will be sent a letter asking for proof of insurance. If you cannot provide proof, the company will purchase a policy regardless of your wishes--hence the term "force-placed insurance." This insurance isn't like a typical homeowner's insurance policy; it only protects the lender or loan servicer. Thus, if your personal belongings are destroyed while you have force-placed insurance, your belongings will not be covered in any way. Furthermore, force-placed insurance is extremely expensive, oftentimes costing hundreds of dollars more per month than the insurance policy that you already have for your home.
Individuals commonly run into issues with being threatened with force-placed insurance policies when their loan is assigned to a loan servicer. As a mortgage can change hands from one loan servicer to another, there is an increased chance of error in terms of proving that you have insurance. While one loan servicer may not have an issue with proving that you have insurance, a new loan servicer may not have adequate records to prove that you are insured.
What to do if You're Threatened with Force-Placed Insurance
If you are a homeowner who has received a letter from your lender stating that it plans to force-place insurance on your home, there are several steps that you should take to prevent the insurance placement from occurring.
- Act quickly. Force-placement of insurance often happens very fast. It's important to address the situation as soon as possible before the policy is placed and your payment increases.
- Send in a copy of your insurance policy. Oftentimes, the lender or servicer will want to see a copy of the declaration page of your insurance policy.
- Keep records. Whether you send this policy via email, fax, or letter, make sure that you keep adequate records that you have sent proof of insurance. This can include keeping the fax transmission page, printing the email proving that you sent the policy, or sending letters certified and requesting a return receipt.
Dealing with Force-Placed Insurance? We're Here to Help
If you've had insurance force-placed on you by your lender or loan servicer, it's important to address the issue as your mortgage payment can increase substantially. Don't wait until it is too late to straighten out your homeowner's insurance--to speak to a member of our legal team, fill out an online contact form or call 347-620-0565 today.