What Is Force-Placed Insurance for Homeowners?
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Your lender can buy force-placed insurance if you don’t maintain the amount of insurance required by your contract.
Force-placed insurance can be more expensive than standard homeowners insurance.
Lenders must mail you a notice at least 45 days before instating a force-placed policy.
Force-placed insurance is a policy your mortgage servicer buys on your behalf if you don't have the hazard insurance required by your mortgage agreement. Lenders may also force-place flood insurance if you live in a flood zone and don’t have adequate coverage.
Force-placed insurance is typically much more expensive than a regular home insurance policy. It often covers your home’s physical structure but not your personal property or personal liability, so you’re paying more for less coverage.
This kind of insurance may also be known as creditor-placed insurance, lender-placed insurance and collateral protection insurance.
How does force-placed insurance work?
When you take out a mortgage, the lender will require you to have homeowners insurance. This shields the company financially if your home is damaged or destroyed.
Typically, a lender buys force-placed insurance when it believes you either don’t have enough home insurance or you have no coverage at all. There are a few reasons why this could happen:
You canceled your home insurance policy.
You let your home insurance policy lapse.
Your home insurance policy doesn’t meet your lender’s minimum requirements.
Force-placed insurance is a fallback for the lender, not a first choice. If you maintain your own insurance, you can avoid the need for force-placed insurance altogether.
How your lender will notify you about force-placed insurance
Your loan servicer can't buy force-placed insurance for you without warning. It’s required by law to provide you with a written notice at least 45 days before it starts charging you for the force-placed insurance premium.
The initial notice must include specific details:
Date of the notice.
Servicer’s name, mailing address and contact number.
Borrower’s name and mailing address.
A request for you to provide proof of adequate insurance.
The reason your servicer is considering force-placed insurance (like expired or insufficient coverage).
Detailed information on what insurance data is needed and how to submit it.
A statement indicating that force-placed insurance could be “significantly more expensive” and potentially offer less coverage than a policy you buy yourself.
If the servicer doesn’t receive proof of insurance from you after the first notice, it’s legally required to send you a second notice. This reminder is sent at least 15 days before it charges you for the force-placed insurance. This is your final notice to provide evidence of your insurance coverage.
If the servicer doesn’t receive the required proof within this period, it’s allowed to proceed with charging you for force-placed insurance.
» MORE: The best homeowners insurance
How to get rid of force-placed insurance
If you have force-placed insurance, you can get it removed by taking these steps:
Continue making payments. First and foremost, keep up with your mortgage and any force-placed insurance payments. Not paying could lead to foreclosure.
Contact your insurance company. If you had a policy that lapsed, reach out to your insurance company. Find out if it's possible to reinstate your policy or, if not, what you need to do to get new coverage.
Shop for a new policy. If reinstatement isn't an option, or if you didn't have a policy to begin with, you’ll need to shop for home insurance. Compare quotes and coverage options from at least three insurers to find a policy that fits your needs and satisfies your mortgage requirements.
Consider FAIR plans. If you’re having difficulty getting insurance due to the location or condition of your property (like being in a high-risk area for natural disasters), look into FAIR (Fair Access to Insurance Requirements) plans. These state-mandated insurance pools are designed to provide coverage when traditional insurers won’t.
Gather proof of insurance for your lender or servicer. Once you have a policy, send it to your mortgage servicer along with a request to cancel the force-placed policy. It then has 15 days to cancel your policy from the day it receives your evidence.
Confirm cancellation. After providing proof, your servicer should cancel the policy. If there was a period in which your own insurance overlapped with the force-placed insurance, your servicer must refund you for any overlapping coverage.
Consider consulting an attorney if your insurance policy lapsed because your lender failed to pay your premiums on time from your escrow account. This may indicate a breach of contract or negligence on the lender's part. An attorney can help assess the situation and determine if you need to take legal action.
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