Lender Placed Insurance: What’s That?

Homeowners insurance policies are crucial for protecting your home and personal belongings in the event of a disaster such as a hurricane. However, not all homeowners insurance policies are created equal. There is a significant difference between a homeowners policy procured by the homeowner and a lender-placed policy procured by the mortgagee, and it’s important for homeowners to be aware of these differences.

When a homeowner purchases a homeowners insurance policy, they are the named insured on the policy. This means that they have the right to file a claim and receive payment for any damages covered by the policy. However, in some instances, a lender may require the homeowner to purchase insurance coverage as a condition of the mortgage. If the homeowner fails to purchase this coverage then the lender will ultimately purchase coverage themselves to protect its financial interest in your property (which is the collateral for the lender’s loan). This is known as lender-placed insurance, also referred to as force-placed insurance.

One of the main differences between a homeowners policy and a lender-placed policy is that generally the mortgagee, not the homeowner, is the named insured on the policy. This means that the mortgagee is the one who has the right to file a claim and receive payment for any damages covered by the policy. The homeowner may not even be aware of the existence of this policy until it’s too late, which can be a huge disadvantage if they need to file a claim.

Another disadvantage of lender-placed insurance is that it can be significantly more expensive than insurance procured by the homeowner themselves. In some cases, the cost of lender-placed insurance can be two or three times higher than what the homeowner could have obtained on their own. Furthermore, notwithstanding the added significant expense, lender-placed policies notoriously afford less coverage than policies procured by the homeowner. For example, the homeowner’s personal property (or contents) inside the home is generally not covered because the lender has no financial interest in providing coverage for the homeowner’s personal property (which is not subject to the mortgage on the property). 

If the homeowner experiences property damage during a hurricane and has a lender-placed policy, they may face additional difficulties. The homeowner may not have standing to sue the insurer in the event of a denial and/or underpay of the claim because they are not the named insured on the policy. The mortgagee, on the other hand, may not have an incentive to fight for the homeowner’s interests because they are only interested in protecting their own financial interests in the property.

It’s important for homeowners to avoid lender-placed insurance whenever possible. If you are purchasing a home and need to obtain insurance coverage as a condition of your mortgage, be sure to shop around and obtain your own insurance policy as the named insured. This will give you the protection you need and the ability to file a claim and receive payment in the event of property damage.

At Parrish Law, we understand the importance of homeowners insurance and the difficulties that can arise with lender-placed coverage. That’s why we work with our clients to ensure they have the appropriate insurance coverage in place before disaster strikes. We also assist our clients in filing claims and fighting for their interests in the event of a denial or underpayment of a claim. If disaster has already struck, and your coverage is limited to a lender-placed policy, you may still have options. Don’t let lender-placed coverage leave you vulnerable to property damage – contact Parrish Law today for a more thorough discussion with respect to your rights in the event that you have suffered property damage and your only coverage is lender placed.