A bank or mortgage servicer places a lender-placed insurance policy on a house when the homeowner’s property insurance has lapsed or is insufficient.
What Is a Lender-Placed Policy?
When a home loan is approved, the bank requires the borrower to carry insurance on the property to cover possible hazards. The lender requires this as the home itself is part of the collateral that secures the loan. Homeowners sometimes fail to maintain the required coverage. When this happens, the bank purchases insurance to cover the property until the homeowner obtains an adequate policy.
Why Do Banks Use This Type of Insurance?
There are various reasons a bank might force place insurance.
- The owner did not purchase a policy.
- The policy in place doesn’t meet the lender’s requirements.
- The lender didn’t receive proof of insurance coverage from the homeowner.
- The homeowner forgot to pay the monthly premium, resulting in cancellation by the insurer.
Once a financial institution determines the homeowner’s coverage is inadequate, they purchase a policy to ensure the property remains protected against damage. Doing so safeguards the investment for both the bank and the owner.
What Coverage Does it Offer?
This type of insurance mainly protects the financial interests of the lender. Standard program features for both residential and commercial properties include various coverage options. Lender-placed insurance solutions often offer customizable coverage limits and deductibles.
Consult a qualified insurance company to find the best choice for your financial institution.