Buying a home comes with an array of different expenses. In addition to monthly mortgage payments and utilities, homeowners must pay for insurance, too — and premiums can quickly become costly. The average annual premium is $1,585, but this number can fluctuate wildly based on the age, condition, and location of a home. It’s unsurprising, then, that some homeowners let their insurance policies lapse. Doing so might end up being much more costly in the long run, though, due to lender placed insurance coverage that is force-placed. Here’s everything that small mortgage companies should know about buying and implementing an insurance policy for borrowers.
Who Needs Force-Placed Home Insurance?
When would a small servicer need to purchase force-placed insurance? It is a standard feature for a mortgage contract to indicate that homeowners must maintain an active insurance policy on the home. If coverage lapses, then, the lender may intervene and force-place a policy on the home. While borrowers may object to this process, it ultimately serves to protect them and their investment. In addition to the protection it provides for the home, force-placed insurance protects the integrity of the mortgage contract by ensuring borrowers remain compliant.
What Are the Benefits of Lender- Placed Insurance?
The benefits of lender placed insurance may not be immediately apparent, but in fact, there are many. The lender placing the insurance does typically benefit more than the borrower, however. Lender placed insurance is typically far more expensive than policies that are available on the general insurance market. They also typically offer much less coverage despite the higher premiums. Still, these policies benefit lenders by protecting the home and incentivizing homeowners to maintain compliance with the terms of their mortgage.
How Should Borrowers Be Informed of the Policy?
If a small mortgage lender deems a force-placed policy to be necessary, it is important to follow specific protocol when implementing it. Prior to the purchase of a policy, the borrower should be warned that they are noncompliant with the terms of their mortgage, and they should be allowed an opportunity to restore insurance coverage. If they fail to do so, however, a certified letter should be sent detailing the terms of the force-placed policy and informing them of the premium that will be charged.
Can Borrowers Remove a Force-Placed Policy?
Once a borrower has received notice of a force-placed insurance policy, they may quickly decide to restore their own insurance coverage. A borrower can typically do this by paying their outstanding premium or selecting a new insurance policy. In either case, a mortgage lender should request documentation of coverage before removing the force-placed coverage from the account of the borrower. Once this is done, lender-placed coverage should be canceled.
About BTC Insurance Services
Founded in 2011, BTC Insurance Services has proudly served Utah businesses with comprehensive and custom-tailored insurance coverages for a decade. We pride ourselves on fostering long-term client relationships with a personalized and hands-on approach, and have established a reputation built on quality and transparency. For more information about our products and services, we invite you to contact one of our reputable agents today at (855) 944-3457, or send us a message here.
