Securing a mortgage means the lender is taking a risk. While most times the process is a smooth one, there are occasions that homeowners let their required insurance lapse. When that happens, the lender has the option to require lender placed insurance.
Why Is It Enacted?
Protecting the asset is always a top priority. Unfortunately, life often provides bumps in the road. When a homeowner fails to make premiums, cancels a policy, let’s the policy expire or has insufficient coverage, lender placed insurance is a way to protect the asset, homeowner and lender. For homeowners, it is ideal if forced insurance doesn’t happen. It often costs more than traditional policies, making it even more of a priority to stay on track.
How It Works
While every insurance is different, there are common features included in these types of insurance policies. They include:
- Coverage provided for commercial and residential properties
- Add-on options for earthquakes and flooding
- Replacement cost coverage
- Personalized deductibles and limits
For the homeowner, receiving a letter that this type of coverage is necessary may mean losing out on needed coverage. Since the lender selects and chooses the policy, it may not include personal property or liability coverage.
While lender placed insurance is an alternative designed to protect all parties, it may not always be the best solution.