What is force-placed coverage? It's a type of homeowners insurance coverage that you don't want. Here's the quick explanation of force-placed coverage and how it fits into home insurance.
When you buy a home, your lender requires you to purchase homeowners insurance so that its interests, as well as yours, are protected against such perils as fire, wind, hail, and so on. Otherwise, if a covered disaster damages or destroys your home, the lender could be caught holding the bag. You must have homeowners insurance set up before closing on a mortgage.
But what if, after the home purchase has closed, a prospective homeowner drops his or her home insurance or just stops paying his or her premium? Is that a way to beat the system? No. In such a situation, the lender eventually will receive notification that regular coverage is no longer in place. That's when the lender will step in with force-placed coverage – it literally buys coverage from an insurer for your home.
Force-placed Coverage - What's So Bad About It?
What's so bad about force-placed insurance? Only two things: its price and its coverage.
Force-placed coverage generally costs between four times and 10 times as much as regular home insurance that you purchase on your own. And yes, you do have to pay for it – you agreed to it when you signed all those documents to close the purchase of your home. In fact, policies are generally backdated to the cancellation of your coverage, which means you will be charged back premiums. The higher costs and back payments often are enough to force many homeowners into foreclosure.
The other problem with force-placed coverage is that the protection is designed for the lender, not the homeowner. That makes it different in the following ways:
- No contents coverage. A standard home insurance policy typically includes contents coverage, which can be used to help replace your furniture, appliances, clothing, and other possessions after a covered loss. Because force-placed coverage is designed to protect your lender's interests, it could cover only the dwelling itself.
- No liability coverage. Standard home insurance policies include liability coverage, which helps if a visitor sues you because he or she is injured on your property and claims it's your fault. Again, force-placed policies protect your lender's interests, which are not in covering your liability.
- Amount of dwelling coverage. A standard home insurance policy typically includes enough dwelling coverage to rebuild your house in case of a covered loss. Force-placed coverage sometimes includes only enough coverage to pay off the outstanding balance of the mortgage.
Avoid Force-placed Coverage
What can you do to avoid force-placed coverage? There are a couple of ways to make sure you don't get into the situation of paying exorbitant amounts for coverage that doesn't protect you.
- One is to shop your home insurance coverage to make sure you're not already paying too much. Most experts recommend shopping your policy at least annually.
- The other way is to get the right home insurance at the right price from the start.
At HomeInsurance.com, we'll shop your coverage for you and get up to six homeowners insurance quotes. We'll even help you evaluate the quotes and decide the right policy for you. Our carrier partners include some of the top-rated names in the industry, including Safeco Insurance, The Hartford, MetLife, Liberty Mutual, Travelers, and Foremost.
The best thing is that we'll also help you find discounts to lower your premiums every month. HomeInsurance.com's licensed agents specialize in finding you every price break allowable. For example, you could save up to 20% if no one in your household smokes tobacco products; you could save up to 5% just for having deadbolt locks on all exterior doors.
Force-placed coverage is expensive, and it doesn't give you all the coverage you need. Avoid it at all costs.
Start by filling out our online form or call today to get multiple home insurance quotes from an independent agent licensed in your state.