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RE Q&A: OK to Go With Lender’s Force-Placed Policy?

If a mortgage holder drops homeowner’s insurance, their lender will “force-place” a policy on the home. But that policy protects only the lender – not the homeowner.

FORT LAUDERDALE, Fla. – Question: Thank you for your article about going without insurance if your mortgage is paid off.

We are considering going without homeowner’s insurance, and we have a mortgage loan. We are OK with letting our lender force-place insurance on us to the extent of the mortgage. It is better than nothing and would be much cheaper than the ever-increasing price of private insurance.

Are we OK doing this? – Robert

Answer: No, this is a bad idea for several reasons.

Homeowner’s insurance covers more than repairing your home if a casualty occurs. It also provides coverage for your possessions inside your home, plus your appliances, fixtures, and furnishings. It also provides liability protection if someone gets injured on your property.

When you have a loan on your house, the mortgage contractually requires you to maintain insurance on your property. If you do not, your lender has several options, including purchasing “force-placed” insurance on your dime. If you do not pay, your lender can foreclose your home.

Force-placed insurance is bad for homeowners. It only protects your mortgage lender for the outstanding loan balance, and that money gets paid to the lender rather than to you so you can repair your home. There is no personal property or liability coverage.

If, for example, your home had a major fire, the force-placed coverage would pay your lender, but you would get no assistance with any repairs nor with the replacement of your possessions in the house. You would be left with a burnt husk and still must clean up the property or risk having code violations and associated fines from your municipality.

Even worse yet, force-placed is almost always more expensive, sometimes significantly so, than a privately purchased policy.

The ever-rising price of insurance is hitting many people hard, but what you suggest will cost you more money while providing you with much less protection.

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