Mortgage agreements typically include specific requirements for insurance that borrowers must satisfy in order to maintain compliance with their contract. These requirements vary based on your lender, property value, and home location, but what happens when a policy isn’t compliant — or a borrower fails to maintain any insurance?
What is Lender Placed Insurance?
Lender placed insurance is typically implemented by a lienholder when a borrower does not buy a policy that satisfies the requirements of their mortgage contract or their policy lapses and is not renewed — but how does lender placed insurance work? Generally, your mortgage lender will purchase a policy on your behalf that meets your contract’s requirements.
How Does Lender Placed Insurance Differ From a Policy I Buy Myself?
Insurance that you purchase through an agent is typically the most comprehensive and offers the most coverage. It is also often the best value. Lender placed insurance, on the other hand, costs more and covers less. It will only cover the cost of repairs if there is damage to your property’s structure.
Will My Bank Purchase Lender Placed Insurance Without My Knowledge?
No. Most mortgage lenders require borrowers to continuously provide documentation of insurance coverage, and if a homeowner fails to provide this documentation — or their coverage is deemed insufficient — a lender will provide notice before implementing lender placed insurance. A lender will typically issue several warnings to make borrowers aware of the need for a new insurance policy.
How Will Lender Placed Insurance Be Billed?
While a lender may buy an insurance policy on a homeowner’s behalf, they won’t foot the bill — so who pays for lender placed insurance? When a lender placed insurance policy is implemented, the cost of the monthly premium will typically be added to the homeowner’s monthly payments. These payments will then be maintained in an escrow account until a bill is due.
Am I Able to Cancel Lender Placed Insurance?
Yes. Lender placed insurance policies are intended to be a stop-gap solution for homeowners whose coverage lapses. As soon as a homeowner furnishes proof of a sufficient insurance policy, the lender placed insurance policy can be canceled and the cost of the monthly premium should be removed from the borrower’s monthly payments.
How Do I Prove That My Insurance Is Sufficient?
If you believe that your insurance is sufficient and your lender is implementing lender placed insurance in error, you should first review your mortgage contract and identify the specific stipulations outlined in its text. Many mortgage contracts require multiple types of coverage — homeowner’s insurance, flood insurance, and earthquake insurance, for example — so you should verify that you have all types of coverage mandated by your contract. If you do, and your policies satisfy your contract’s coverage requirements, you should contact your lender to ask what part of your coverage is noncompliant.
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.
