If you take a mortgage on your home, your lender will undoubtedly require that you have home insurance to protect this investment. In the event anything happens to your home, i.e. natural disaster, fire, flood, etc., your insurance will cover repair or replacement costs. This saves you from having to pay these costs out-of-pocket. Ideally, your dwelling insurance coverage should be sufficient to replace your home in the event of total loss. If you purchased a high-end home, insurance coverage is even more essential as you may not have the resources to replace your home on your own.

What is Forced Placed Insurance?

If, for any reason, you cancel your home insurance or it lapses due to missed payments, your lender runs the risk of losing his investment if your home were to be destroyed in a disaster. To compensate for your lack in providing insurance protection, your lender can put a forced placed insurance policy on your property and add this cost to your mortgage payment.

Banks, mortgage companies and other home loan providers use the option of forced placed insurance to protect their financial investment when your insurance protection stops. In addition to dwelling coverage, lenders can put forced placed flood insurance coverage on your home, if it’s situated in a flood zone.

The cost of a forced placed insurance policy will naturally be more expensive than your original homeowner’s coverage. This means you will end up paying more for your insurance coverage. In some cases, you may pay more for less protection as these policies don’t always cover liability or personal property.

Steps to Take When a Lender Puts Forced Placed Insurance on Your Home

Your first line of defense is to restore your original insurance coverage or find another insurance company to purchase home insurance coverage. In the meantime, you’ll need to continue paying for the forced placed policy. Once you have home insurance in place, make a photocopy of your policy and send it to your lender as proof that you’ve restored coverage. At the same time, you can formally request the cancellation of your lender’s policy.

Be aware that disputes may arise, causing your lender to delay in removing his policy. Delays will be costly, as you are now paying for two policies. You may need to send a Qualified Written Request (QWR) to your lender requesting pertinent information about your account. A sample copy of a QWR can be found on the HUD site online.

In some cases, an error may have occurred on the part of a lender, resulting in failure to disburse funds from an escrow account to pay a home insurance premium. If missed premium payments are your lender’s fault, you may need to hire an attorney to settle the matter. You can consult with the your attorney for legal help.

For more information about home insurance issues or to file a complaint for insurance fraud, contact your Local Insurance Department consumer helpline.