This is an overview of what a force-placed insurance plan is. Learn how to avoid them, what to do if someone puts a force-placed plan on your property, and more.

Written by Marisol Pereira

Reviewed by Carrie Adkins

Updated on Apr 4, 2024

Table of Contents

What is it?
Why would someone have it?
Why you should avoid it
Why your coverage might lapse
What to do if you have it
FAQs

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Force-placed insurance is insurance taken out on your property by your lender that you are required to pay, and can often come with lower coverage and higher fees.

When buying a big asset like a home or a car, most people need to go to a lender to secure a mortgage or a

loan

. However, to get a loan, you'll need adequate home or car insurance, which can be expensive. If this results in an insurance lapse or cancelation, your lender has the right to take out a force-placed insurance policy on your property to protect their financial investment.

Forced-placed insurance plans are definitely not a good thing—but it's still possible to avoid them. Here's how to avoid getting a force-placed insurance plan, how to get out of one that you're in, and more.

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What is force-placed insurance?

Force-placed insurance is an insurance plan designed to protect the lender's interest. If your lender finds your current insurance plan inadequate for any reason, they can take out a plan that meets their requirements, which you are required to pay.

Why do lenders take out force-placed plans?

A lender can take out a force-placed insurance plan for several reasons. If you lose or cancel your current insurance, that will obviously fail to meet your lender's requirements, and they might choose to take out a force-placed plan on your house or car as a result.

Your lender can also take out a force-placed plan if your current plan is simply inadequate. For example, if flood protection is not included in your homeowners insurance and you live in a flood-prone area, your mortgage lender could take out a force-placed flood insurance policy on your property. Depending on where you live, your mortgage lender may be able to take out other forms of force-placed hazard insurance.

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Why you should avoid force-placed insurance plans

When your lender takes out a force-based insurance policy on your property, you are still responsible for the payments. The lender wants to ensure that their investment is protected, meaning that a force-placed plan might have exorbitant rates.

A force-placed policy will also provide less coverage than a standard insurance plan, too. The lender is usually only interested in protecting the property itself, and so force-placed plans often exclude

personal property

and, if you're insuring a house,

liability coverage

Force-placed plans are often outside of your control, since you won't always know exactly what your lender wants to cover. The best way to try and avoid them is to maintain adequate insurance coverage and avoid lapses and cancelations.

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Potential causes for lapses in coverage

Here are some of the common reasons people lose their insurance coverage:

Missed payments. Most insurance companies have a grace period, and will send out a written notice in case you forget to pay in time. However, if you wait too long to catch up on your payments, your coverage will lapse.

Missing the renewal of a policy. Always be mindful of the deadline to renew your policy, and make sure to communicate with your insurance company in a timely manner.

House location. If your house is located in an area considered to be risky by insurance companies (such as an earthquake-prone area), your insurance company may require you to purchase hazard insurance coverage.

Previous false claims. If you have previously filed false claims with insurance companies, some insurance companies may be wary of offering you a coverage plan.

Poor credit score. A bad credit score can indicate a history of unreliable bill payments, meaning that insurance companies may be reluctant to insure your property.

Old homes. Houses are required to maintain a certain maintenance and structure standard. If you fail to meet these basic requirements, you can lose your insurance coverage.

Wild animals. Although this is a less-common reason for coverage denial, most insurance companies are against wild animals being kept in homes, and breaking this rule can leave you without coverage.

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What to do if a lender takes out a forced-placed policy on your property

If you are aware of a force-placed insurance policy that has been taken out on your property, the first thing you need to do is get more information. Make sure you know exactly why your insurance wasn't adequate so that you can prevent this from happening again.

Secondly, you should try to find

another insurance policy

with the required level of coverage at a price

you can afford.

Once you purchase the insurance plan, contact your lender. They will provide you with the documents you need to prove you have adequate coverage.

If they do not accept your new insurance plan, you may need to contact an attorney to have the existing force-placed insurance removed. However, as long as your new plan covers whatever gap there may have been previously, you should be all set.

While force-placed insurance plans can be expensive and difficult, there are ways to avoid them and to replace them with policies that work better for you. As long as you make sure to stay on top of your payments and choose an insurance company with any coverage that your lender requires, you should be able to avoid the frustrating fees that come with force-placed coverage.

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FAQs

How much is force-placed insurance?

Force-placed coverage can be very expensive, often running as much as four to 10 times the amount of a standard homeowners policy. The average homeowners policy in the U.S. costs $1,312 per year, which means that force-placed coverage can be anywhere between $5,248-$13,120.

Is my lender required to send me a force-placed insurance notice?

Yes, they are! Your lender is required to send you a notice or letter about your force-placed insurance at least 45 days before they can charge you for coverage. It should include:

The date of the notice

You and your lender's respective names and mailing addresses

A request for hazard insurance information for your property

A thorough description of why your previous coverage was inadequate, as well as information about your force-placed plan.

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