Force placed insurance coverage is a policy type that covers lender risks when a borrower does not have a current plan. This insurance protects the bank’s financial interest in your property or vehicle.
How Does Lender Placed Insurance Work?
If you do not have sufficient protection for your house or car, your lending institution can force a policy to protect the asset. The plan provides the minimum coverage required to protect the monetary investment of your bank. Although the financial institution puts the policy in place, you must pay the premiums.
Be aware, this specialized coverage is typically expensive and does not cover your personal property and may not have adequate liability protection. You cannot choose the prices or decide the coverage details of these policies.
When Do Banks Use Force Placed Insurance Coverage?
There are several reasons a bank may institute this type of policy:
- A home or car owner failed to purchase coverage.
- The owner’s plan is insufficient.
- The policyholder missed payments and the policy lapsed.
- The owner did not provide proof of insurance to the bank.
When an institution loans money to a borrower, they assume a certain amount of financial risk. Lender placed policies protect banks from potential issues when an owner’s plan lapses or does not provide sufficient coverage.