Financing a new home can be overwhelming, especially when your bank begins throwing around new and menacing terms like force placed insurance. While this type of coverage may sound intimidating, it can provide a measure of extra security for both homeowners and lenders.

What is Force-Placed Insurance?

Force-placed insurance is a form of mortage insurance put in place by banks and other lenders to protect a property that is not covered by the borrower’s own insurance. This ensures that the lender recieves back the full amount of the loan, even if the property is destroyed or devalued. While primarily  intended to prevent risk to the lender, certain types of force-placed insurance also protect the homeowner in case of a fire or other disaster.

When Is It Needed?

Generally, force-placed insurance comes into play when the borrower’s own mortage insurance has a lapse in coverage. This could occur due to missed insurance payments or the expiration of a policy, but is sometimes out of the borrower’s control. Some properties in high-risk natural disaster areas can only be insured by force-placed insurance because conventional insurance agencies refuse to cover them. I

 

Force-placed insurance adds an extra layer of security to the financing process. It ensures that the financial interests of all parties are protected, even if the homeowner is unable to provide mortage insurance.