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How Force Placed Insurance Can Save a Homeowner From Taking a Loss

by Farhan Musavi

posted in Insurance

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There is no one place in the world where you can protect yourself against disaster, just like there is no one insurance plan to protect you against all losses. Many homeowners don't own their homes outright because they have a mortgage against their property. So what happens when homeowners have insurance, but their lender deems it insufficient? It could be because a lapse in insurance coverage occurred or the homeowner does not have sufficient coverage, but force placed insurance can actually protect the homeowner from taking a loss.
Force placed insurance is a type of investment protection for creditors that covers your personal property. The insurance policy is acquired by the lender, bank, or financial loan servicer, but the homeowner is responsible for paying for the coverage. It is tacked on to the costs of your monthly mortgage payments. This coverage will protect the lender's financial interest in the property until the borrower has paid back 100% of their loan.
In many parts of the country, there are higher natural disaster risks. A home that is sitting in a flash flood zone may be covered, but the lender may not think there is sufficient coverage. They may add this type of insurance policy on flood susceptible homes if they determine it does not have the legal minimum requirement of an insurance policy.
Lender placed insurance typically costs more than what a homeowner would purchase for a standard policy and the coverage may be more limited as well. The fine print on any policy should be read carefully, but this insurance plan, in particular, often has limited coverage in comparison to others. For example, owner liability is not covered, nor would the policy cover personal effects.
Lender acquired insurance can, however, protect you from losses if there is a natural disaster. For instance, if your home insurance has an 80% replacement cost and you live in a high-risk flood zone, your mortgage lender can deem that this is not sufficient coverage for you. In some cases, your home insurance provider will not increase your coverage. Instead, your lender will purchase additional insurance on your behalf. You now have the full coverage you need.
A supplemental insurance policy is a way for you to obtain 100% insurance coverage to ensure your home is fully protected. It protects you in the event of a disaster, ensures you and your family will be covered if you experience a home emergency, and prevents you from taking a loss. With regular property insurance, if you're only covered for 80%, for example, you may experience a 20% loss during the assessment of your claim.
A loss due to insufficient home insurance coverage could have lasting effects and may never be regained. Possessing a force placed insurance policy can protect you beyond the scope that your own insurance provider is willing to offer you.
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