All mortgage lenders require homeowners to carry adequate homeowners' insurance. If your policy lapses or is otherwise insufficient, the lender may place a lender placed property insurance policy on the home to protect its financial interest.
Why Is Property Insurance Important?
When a bank loans you money for a mortgage, it assumes a risk: if the home is damaged or destroyed by weather, fire, vandalism, or another peril and there is no insurance, the lender could face expensive losses.
Homeowners' insurance also protects you by helping pay to repair or replace the home after a covered loss.
When do you Need Lender Placed Property Insurance?
You'll only need lender placed property insurance if your homeowners' insurance policy lapses for some reason. Common causes include cancellation, the insurer going out of business or stopping coverage in your area, or missed premium payments.
Common reasons a policy lapses
- The policy is canceled.
- Your existing insurer stops offering homeowners' insurance in your area or goes out of business.
- You forget to pay the premiums.
In any of these cases you can purchase a replacement policy from a private insurer; if you do not, the lender will act to protect its interest with a lender placed policy. For more on similar coverage arrangements, see Forced placed hazard insurance.
How do you get Lender Placed Property Insurance?
Your mortgage holder will notify you before they put a lender placed policy in place. Lenders generally wait until you have received several past-due or cancellation notices from your insurance company and they confirm that your homeowners' policy has been cancelled.
How Much Does Lender Placed Property Insurance Cost?
Lender placed property insurance is often significantly more expensive than a standard homeowners' policy—sometimes up to twice the cost. You are responsible for the premium, but you do not choose the insurer or the coverage limits; the lender makes those decisions.
The higher cost is partially because the policy is usually placed sight-unseen: the insurer often does not inspect the home's current condition, occupancy, or recent loss history before pricing the policy. For information about lender-directed programs and options, see Lenders Program Insurance.
What Does Lender Placed Property Insurance Cover?
A typical lender placed insurance policy has limited coverage compared with a homeowner-selected policy. It often covers the structure for the lender's interest but may exclude liability coverage for injuries on the property and may not cover personal belongings.
How to Avoid a Lender Placed Property Insurance Policy
To avoid paying for a lender placed policy, keep an active homeowners' insurance policy in force: pay premiums on time and keep copies of all insurance notices and declarations pages.
If you are unsure whether your mortgage servicer has a record of insurance, contact them or consult loan servicing resources for guidance, and consider reaching out to your insurer directly. If you need help reviewing your options, talk to your agent.
Frequently Asked Questions
Will lender placed insurance cover my personal belongings?
Usually not; lender placed policies commonly cover the structure for the lender's interest and often exclude coverage for personal property.
Can I replace a lender placed policy with my own policy?
Yes. If you obtain an active homeowners' insurance policy that meets the lender's requirements, the lender should cancel the lender placed policy and stop charging the premium.
Who pays for lender placed insurance?
The borrower is typically charged the premium for lender placed insurance, and the cost may be added to the loan balance or billed separately.
Will a lender placed policy include liability coverage?
Often not; many lender placed policies have limited or no liability coverage, so maintaining your own homeowners' policy is important for liability protection.