Force-Placed Insurance

Updated: 29 February 2024

What Does Force-Placed Insurance Mean?

Force-placed insurance is an insurance policy placed by a lender onto a property in the event that the property owner's insurance has lapsed or been cancelled. Property owners are required to have sufficient insurance to protect their property so that the mortgage holder’s, or lender’s, interests are protected in case of damage to the property. The property is essentially collateral that serves as security to guarantee repayment of the loan. If a property owner allows his or her insurance to lapse, or has insurance deemed inadequate by the lender, the lender can buy forced-placed insurance at the homeowner’s expense.

Force-placed insurance is known as forced place insurance, lender-placed insurance, or creditor-placed insurance.

Insuranceopedia Explains Force-Placed Insurance

Force-placed insurance has garnered some media attention in recent years. This insurance is much more expensive than insurance that can be obtained by a property owner on the open market, and offers limited coverage. For example, personal property in the home and owner liability are not covered.

Lenders are required in most states to send two notices to the homeowner before they can buy force-placed insurance. The notices must inform the property owner, among other things, why the lender is contemplating buying force-placed insurance and how the property owner can remedy the problem. A second notice is supposed to be sent at least 30 days after the first notice, and the forced-placed insurance cannot be purchased until at least 15 days after the second letter is sent.

Insurance regulators in some states have investigated what is apparently an increase in the purchase of forced-place insurance, and class-action suits launched against certain banks over their practices (see, for example, Hofstetter v. Chase Home Finance, LLC, 751 F.Supp.2d 1116 (2010, United States District Court, N.D. California; this is an opinion on an issue decided prior to trial, at trial plaintiffs recovered some monies).


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