Lender-Placed Insurance, also known as Force-Placed Insurance is a type of insurance policy placed on a property by a lender or a loan servicer when the property owners’ own insurance is cancelled, lapsed or is deemed insufficient. If the property owner does not secure a new replacement policy in a timely manner for the property, a lender may Force-Place Insurance to protect its financial interest in the property.
Depending on the location of the property, a lender or loan servicer may also Force-Place Flood Insurance on the property. Typically this is done when the property is considered to be in a flood zone and borrowers own insurance is cancelled, or the lender does not think there is an adequate amount of insurance to protect the property.
When taking out a loan to purchase a property, lenders require borrowers to maintain adequate homeowners insurance on their property. However, there are a number of reasons as to why the homeowner might cancel or let their insurance lapse on the property. If this happens, most mortgages will allow the lender to Force-Place Insurance on the property to protect its collateral.