Force-placed insurance is a policy your bank or lender purchases in the event of a homeowners insurance lapse or cancellation. These policies tend to cost more and provide less coverage than what you could find on your own.1
States don’t have a legal requirement to buy homeowners insurance, unlike with auto insurance. But if you have a mortgage, your mortgage lender will require you to purchase home insurance to protect its investment in the property.2
Here’s what you need to know about how force-placed insurance works differently than standard home insurance and what it covers.
When you take out a mortgage loan, your lending agreement states that you must maintain a certain level of coverage on the property. If your policy lapses, your insurer cancels your policy, or you have insufficient coverage, your mortgage servicer may buy force-placed insurance. Your loan documents should have the specific details.
Also known as creditor-placed or lender-placed insurance, this policy protects your lender’s investment in the home in case of an unexpected loss.3 It’s a type of hazard insurance coverage that your lender takes out on your behalf.
Before buying force-placed insurance, your lender will notify you that you either need to provide proof of insurance or purchase coverage. If you fail to provide proof of insurance, your lender will inform you they intend to purchase force-placed insurance. This notice will also include details about the potential coverage and premium cost.
Yes. Force-placed insurance is legal, but federal law limits how and when a lender can purchase force-placed insurance on your behalf. First, your lender must have reasonable proof that you’ve failed to maintain adequate homeowners insurance.
If you don’t have coverage in place, the lender must mail two notices requesting that the homeowner either purchase or provide proof of insurance. The lender must send the first written notice at least 45 days before purchasing a lender-placed insurance policy and the second notice at least 30 days later. The notice must include an estimate or the cost of purchasing a force-placed policy.5
Force-placed insurance covers the lender’s interest in the property, so this policy may not cover as much as a standard home insurance policy would. It usually provides dwelling coverage for the home’s structure if a fire or natural disaster damages or destroys it.
Creditor-placed insurance may also cover fewer perils than a standard homeowners insurance policy. If your home does need repairs or a complete replacement, it’ll likely cover the actual cash value, resulting in a lower payout.4
Force-placed insurance has fairly limited coverage, and keeping it as your home insurance policy has some risks. Here’s what this insurance won’t cover:
Insurify doesn’t have internal data on the exact cost of force-placed insurance, but it usually costs more than regular homeowners insurance. The average annual cost of a home insurance policy with $300,000 in dwelling coverage and a $1,000 deductible in the U.S. is $2,377.
Force-placed insurance tends to cost more than standard home insurance for a few reasons. Your lender’s main objective is to make sure the property has adequate coverage, but it doesn’t need to worry about helping you save money. For that reason, lenders have no incentive to negotiate with insurers, ask for discounts, or shop around for different policies.
Force-placed insurance isn’t a great option for borrowers because of its high premiums and limited coverage.
Here are the steps you can take to remove force-placed insurance:
Reach out to your insurer. Before your lender will remove force-placed insurance, you must have an adequate homeowners policy in place. You can contact your current insurance company to reinstate your previous policy or purchase an entirely new policy.
Provide proof of insurance. Once your new policy is in effect, send a copy of any relevant documents to your lender. After you’ve shown the lender proof of insurance, you can send a letter requesting that they cancel the force-placed policy.
Follow up. After you’ve submitted the request and documents, follow up to ensure your lender receives all the information.
Verify removal. Verify that your servicer has removed the force-placed insurance and refunded you for any dual coverage. Make sure you keep adequate records in case you need to file a complaint.1
Here’s some additional information about force-placed insurance and how to avoid using it.
Yes. Once you purchase your own policy, notify your lender about the updated insurance information. Your lender must cancel the force-placed policy and refund any fees for periods of overlapping coverage.
The best way to avoid force-placed insurance is to maintain your current home insurance coverage or purchase a new policy before policy lapse or cancellation. Your lender must notify you at least 45 days before proceeding with force-placed insurance. Once you receive that notice, you can either provide proof of insurance or start shopping around for a new policy.
Yes. You can receive a refund if you already had active insurance and paid for duplicate coverage if you show proof of coverage. But if the force-placed insurance was due to a lapse in coverage, you’re unlikely to receive a reimbursement.
Force-placed insurance is coverage that the lender chooses to protect its financial interest in the home. You always have the right to choose your own insurance policy and avoid force-placed insurance.
Always keep an eye on your policy expiration date so you can renew your policy or find a new one and avoid a policy lapse. Reach out to your insurance agent if you have questions about policy renewal.
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3+ years experience in insurance and personal finance editing
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