Understanding Why Banks Can Force Place Insurance

When a homeowner does not have insurance coverage, a bank can force lender placed insurance coverage. Banks can do this to protect their investment in the property.

Why Is Force Placed Insurance Instituted?

Mortgages require that owners have adequate protection in place to protect against financial risks. If the person who borrows the funds does not secure a policy that provides sufficient safeguards, the mortgage servicer has the right to force an insurance plan on the owner. Once a lender places this kind of policy, the owner must make the payments.

When Might a Lender Force Insurance Coverage?

Borrowers may find themselves without insurance under various circumstances:

  • The borrower did not show the bank proof of coverage.
  • The insurance agency canceled the plan due to non-payment.
  • The homeowner failed to purchase a plan.
  • The owner bought a policy, but it does not meet the required coverage details.

What Are the Rules Regarding Lender Placed Insurance Coverage?

A financial institution cannot purchase a force placed policy unless it has reasonable grounds to believe the borrower does not have an active plan. Banks must provide homeowners with notices before they buy a force placed policy.

A mortgage agreement details the amount of coverage a borrower must purchase to protect the home. If the person does not buy sufficient protection, the lender can buy a policy that safeguards their investment.