When a person secures a loan for a home purchase, financial institutions require that those borrowers maintain adequate mortgage insurance on the property. If a homeowner should fail to maintain that insurance for any number of reasons, the lender is typically able to protect its own financial interests with so-called lender-placed insurance. In the state of Utah, lender-placed insurance is a common solution. UT lender-placed insurance can be removed when it is no longer needed, or if circumstances change in the borrower-lender relationship. Here is a guide to removing UT lender-placed insurance.
What is Lender-Placed Insurance?
Financial assets are at stake when a financial institution like a bank or mortgage servicing company enters into a home loan agreement with a property buyer. Lender-placed insurance was designed to protect the financial interests of the lender; in simple terms, this insurance solution is applied when the property buyer’s own insurance is inadequate to cover losses. UT lender-placed insurance goes by several names, including:
- Force-placed insurance
- Creditor-placed insurance
- Collateral protection insurance
Why is Lender-Placed Insurance Needed?
When a property buyer enters into a mortgage loan agreement, most states and lenders require borrowers to obtain and to maintain property insurance as a condition of the loan agreement. Unfortunately, borrowers are sometimes unable to maintain this important coverage. Circumstances in which a borrower does not maintain insurance or finds coverage inadequate may include:
- Policy expiration.
- Failure to pay annual insurance premiums.
- Withdrawal of coverage by an insurer or cancellation of an existing policy.
- Oversight on the part of the property’s borrower.
- Inability to secure coverage in high-risk areas.
When a property owner’s own insurance fails to provide suitable coverage, UT lender-placed coverage serves to protect the lender’s financial interests.
What if UT Lender-Placed Insurance is No Longer Needed?
Lender-placed premiums are typically added to a borrower’s monthly mortgage payment, driving up costs. There is a significant incentive on the part of the borrower to remove this coverage if it is no longer needed. Lender-placed coverage removal scenarios include:
- When outstanding insurance premiums are paid up.
- When a borrower can secure suitable coverage from an insurer, such as for properties in high-risk locations.
- When a borrower is otherwise able to reinstate coverage that has expired, lapsed, or been canceled.
There is another reason why lender-placed insurance should be removed if it is no longer needed. These policies typically cover only the outstanding portion of a loan and may not include other valuable protections like personal property coverage. Borrowers can often find more comprehensive insurance solutions on the traditional market.
How to Remove Lender-Placed Insurance
Utah homeowners have many choices when it comes to mortgage insurance. UT lender-placed insurance is only one solution if a homeowner’s policy lapses or is inadequate to protect the lender’s financial stake. Borrowers with lender-placed coverage can have it removed when it is no longer needed.
First, the borrower can secure insurance coverage that meets the standards of the lender. Borrowers can choose their own insurer or simply use the existing insurer if available. Once this policy is obtained, borrowers must provide documented proof of coverage to the lender via certified mail or via electronic delivery. A tip for borrowers is to obtain a letter of cancellation of the UT lender-placed policy for his or her records.
Finally, it is a good practice for borrowers to address changing insurance needs by looking at financial aspects. Lender-placed insurance may be more expensive and offer less coverage than a traditional mortgage or loan policy. Therefore, there is a financial incentive to have lender-placed policies removed when they are no longer needed. Borrowers should evaluate insurance coverages from multiple carriers to ensure adequate coverage that meets the needs of both the borrower and lender.
About BTC Insurance Services
Founded in 2011, BTC Insurance Services has proudly served Utah businesses with comprehensive and custom-tailored insurance coverages for a decade. We pride ourselves on fostering long-term client relationships with a personalized and hands-on approach, and have established a reputation built on quality and transparency. For more information about our products and services, we invite you to contact one of our reputable agents today at (855) 944-3457, or send us a message here.
