What if My Lender Finds Out I Don't Have Home Insurance?

Fran
Fran Majidi
May 4, 2020

If you have a mortgage on a home, the home does not yet belong to you. It belongs to the lender with whom you have a contractual relationship. Not only are you paying a set amount each month towards ownership, you are actively maintaining insurance coverage on the mortgaged home. In some cases, you may be unaware that you have homeowners insurance because the lender took out a policy on your behalf and payments are included in the monthly payments you make. However, if you do not have homeowners insurance through your lender and your lender finds out, they will likely put force-placed insurance on your home. It’s well within their rights to also foreclose on the property because you are, by default, violating the terms of your mortgage loan. It’s best that you find out if you’re covered right away. If you’re not, compare home insurance rates to see who has the best coverage for you at the right price.

What Is Force-Placed Insurance?

Force-placed insurance is also called credit-place or lender-placed insurance. This is an insurance policy that is placed by a bank or mortgage service on a home if you do not have homeowners’ insurance or if it’s insufficient. If your insurance lapses due to nonpayment or if you are dropped by the insurer, your lender may take out insurance on your behalf, if another insurer will take you.

This is why it’s so important not to file unnecessary claims and to make payments on time and try to keep your claims history clean. Otherwise, you may pay exorbitant rates for basic home insurance or, worse yet, you won’t be able to get any homeowners insurance, which would cause you to foreclose on the house. That’s why it’s important to have the best home insurance in place and to safeguard that account at every turn.

What Do I Need to Know About Force-Placed Insurance?

For one thing, it’s important to note that with a force-placed insurance policy, you’re likely paying too much. There has been lots of reporting on how some lenders have vested interest in these policies for the wrong reason. But regardless of whether or not your lender is placing insurance on your home to protect his financial investment or if he’s got a side gig, it doesn’t matter. Your home should never be unprotected for even a single day.

Another important thing you should know about lender-placed insurance is that it often doesn’t have adequate coverage, often for personal items or owner liability. It’s singular focus is on the home, not its contents or your legal battle if someone trips and falls and ends up suing you for breaking an ankle. Or, if your dog bites the neighbor’s child who was pulling on its tail. As a homeowner, there are a whole host of homeowner catastrophes you need to be prepared to protect yourself against.

Why Should I Not Let My Lender Choose My Home Insurance?

Many people have friendly relationships and refer their clients to other business owners without any shady deals happening. However, no one is as interested in getting a fair rate as you are. Concerns have been raised over the growing use of lender-placed insurance because the lender chooses the coverage provider and amount, as well as the coverage and limits, which may be more self-motivated than it is beneficial to you. And that’s the best case scenario for why a lender would force place insurance on your home. There have been instances of shady dealings, which you do not want to be involved in.

You are your best advocate, so it’s important that you compare homeowners insurance quotes for yourself.

What to Do if Your Lender Has Force-Placed Insurance on Your Home

Even though you may think you’re paying twice, you may have to buy a new policy before you cancel the one placed on your property. You cannot have a lapse in insurance and your lender will not be happy to hear that you plan to be insured for even an hour.

If your old carrier dropped you, do everything in your power to get homeowners insurance right away, especially if your existing carrier refuses to reinstate your policy. You may be paying more but it’ll still be cheaper than the forced insurance your lender may place on the property.

If you cannot get another carrier, continue to make payments on the force-placed policy. Otherwise, your home may be foreclosed.

Reasons Why You May Not Get Homeowners Insurance Coverage

  • Poor credit: Poor credit shows that you don’t make payments on bills on time and in full. Insurance companies are hesitant to take on clients who may allow their coverage to lapse. If you have this problem, overcoming will take time, but you can do it.
  • High risk area: If your home is situated in or near a floodplain, sinkhole, wildfire-risk areas or earthquake prone regions, you may have a hard time getting home insurance.
  • Fraud: If you’ve filed fraudulent claims in the past, you’ll have a hard time buying insurance. You may have to have a spouse or someone else living in the home take out a policy.
  • Too many claims: If you’ve filed numerous claims in the past, insurance companies will and can refuse you. This is why it’s important to only file claims you cannot afford on your own.
  • High-crime zone: If your home is in a high-crime area, it’ll be hard to find a carrier.
  • Old homes: These homes are risky to insurers so you may pay a very high price or not be able to insure at all. If you are able to update building codes, it may help.
  • Unpermitted additions. This one speaks for itself. You can’t insure something that’s technically unlawful.
  • Dog breed: Certain dog breeds are known to do a lot of damage or have shown aggressive behavior towards other animals and humans (including children). Insurers will not insure homes with potentially vicious pets. Certain other animals are also red flags to certain insurers.

What You Should Do:

Comparison shop home insurance policies.

  • Get a new home insurance quote every two years.
  • Report changes to your carrier.
  • Get all the discounts you can.
  • Bundle your homeowners insurance with your auto insurance for savings.
  • Improve your credit (pay your darn bills first!).
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