Homeowners with existing mortgages can benefit from understanding forced placed insurance and how it affects them. This insurance coverage is often called lender placed coverage or collateral protection. Since it protects lenders from borrowers whose property insurance lapses, here are some essential things, you need to know about this insurance option.
If a property’s coverage expires or is deemed insufficient, force placed insurance allows the lender to protect their financial interests within the property. Additionally, lenders may also require forced place insurance on dwellings at a high risk of flooding if the insurance coverage doesn’t meet the legal minimum.
Lender placed coverage is becoming more relevant because of rising foreclosures and increasing lapsed property coverage. This insurance option also allows lenders to replace coverage and protect mortgage interest immediately.
During the “letter cycle,” lenders can formally notify homeowners of insufficient coverage and request evidence of current insurance coverage. After borrowers supply the requested documentation or fail to produce it, force placed coverage can be backdated to fit the last insured date.
When both borrowers and lenders understand collateral protection, they can ensure property value and protect financial assets. Additionally, when coverage is insufficient, borrowers can benefit from understanding why lender placed insurance is required.