If you’re not sure what your new lender placed insurance means, what purpose it serves and what you can expect from the policy, there are a few fundamentals to be aware of. Some of the main features of this type of insurance include strong protections for your lender in case of unforeseen circumstances. Keep these basics in mind.
Lenders Place Insurance When Homeowners Fail To Maintain Expected Insurance
In most cases, lenders have to force-place required insurance to maintain a minimum amount of coverage if the homeowner fails to maintain insurance. This scenario could happen for several reasons. Some of the most frequent ones include the following.
- Policy cancellations or withdrawals on the part of the homeowner or the insurer
- Failure to maintain adequate coverage
- Failure to secure insurance for properties that might be risky to have underwritten
- Missed payments on insurance premiums
Many Lender-Placed Programs Provide Protections for the Insurer
Because lenders choose their force-placed policies, these programs typically provide strong protections for the insurer. For example, many lender-placed policies may offer:
- Replacement costs in the event of significant structural losses
- Protections for weather events such as earthquakes, floods or hurricanes
- Protections for entire real estate portfolios
When your lender makes the decision to assign you lender placed insurance, it’s important to understand the basics of what this policy can mean. You can come back to this easy guide to help you understand the main features of your new insurance.