Avoiding Forced Place Insurance When Looking for a Mortgage

Written by: Christy Rakoczy

When you take a mortgage on your home, you incur many obligations. One such obligation is to pay the bills, of course. However, you are also obligated to maintain proper insurance coverage on your home. If you fail to do so, the bank will likely have a clause in your mortgage documentation indicating that they can purchase insurance for the home and then add the cost to your bills. This insurance purchased by the bank is called “force place” insurance and it is often extremely expensive.

Forced Place Insurance and Your Mortgage

When you are shopping around for a mortgage, it makes sense to look for a mortgage that doesn’t offer disadvantageous terms. For instance, you want to avoid mortgages that force unnecessary costs and fees on you, as well as mortgages that force unnecessary insurance premiums on you. Unfortunately, although forced place insurance is almost universally recognized as a very expensive way for a consumer to get insurance on their property, you likely are not going to be able to find any bank or lender that will lend money to you without some type of clause allowing them to get insurance on your behalf.

The requirement that you maintain home insurance is not, in-itself, an unreasonable requirement, nor is a clause allowing a lender to buy insurance for you if you don’t insure the home yourself. Unfortunately, the problem comes when you let your insurance lapse. Instead of simply buying a reasonably priced insurance policy that is similar to the coverage that you had prior to the lapse, many banks and lenders will buy an incredibly expensive policy- for which they are paid a commission. You’ll be left footing the bill for this cost, which can be extremely high. In one particular case reported on Money Talks News, for example,  a homeowner was charged $33,000 for insurance that could have been purchased for $4,000.

Avoiding Forced Place Insurance When Shopping for a Mortgage

Because it is important and essential for banks and lenders to be able to buy insurance to protect their investment if you fail to keep your property insured, you usually are not going to be able to find a mortgage that doesn’t have some type of clause allowing for forced place insurance. However, you should read your mortgage documents carefully to find out what the rules and requirements are.

It is also imperative that you never, ever let your insurance policy lapse. You must have a sufficient amount of insurance as required by the bank or you can find yourself facing huge bills for forced place insurance. Your bank typically is required to warn you before this forced place insurance is purchased, so you should always open all documentation from your mortgage lender and you should make very sure that you do not ignore any warnings about an insurance lapse. The letter can sometimes look like a form letter or be overlooked in the mass of paperwork that you receive, but this is a grave mistake since it can be much more challenging to get rid of forced place insurance than to avoid having the lender buy it in the first place.


Avoiding Forced Place Insurance When Looking for...

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