What is Force-Placed Insurance?

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Force-placed insurance, also called lender-placed insurance (LPI) or collateral protection insurance (CPI), is a policy most commonly purchased by a lender when you fail to meet the minimum insurance requirements of a loan or lease. Force-placed insurance is almost always more expensive than typical coverage, with worse protections for you.

How does force-placed insurance work?

When you finance a car or home, you're usually required to buy and maintain a certain level of insurance. Lenders require it to protect their investment until you've paid off your loan. If you fail to meet this requirement, your lender may buy force-placed insurance to protect their investment. They can also make you pay for it by adding the cost to your monthly loan payment.

Force-placed insurance tends to provide little or no protection for you. It's designed to protect the lender's financial interests first. For instance, a force-placed policy may cover your home's structure but leave out personal property coverage. It also usually costs much more than regular home insurance. And you can't shop around for the best price, because your lender gets to choose the insurance company.

So, it's best to buy coverage yourself that meets your lender's requirements. That way, you can get the most affordable coverage that meets your needs — and your insurance company's.

Which types of insurance can be force placed?

The most common types of insurance to be force placed are homeowners and auto, but flood insurance is sometimes force placed.

Force-placed home insurance

Force-placed home insurance will usually provide only a minimal level of protection for your property. That means the structure of your home will be protected, but your personal property inside (covered by typical homeowners insurance) may not. Additionally, it's possible that your force-placed homeowners insurance won't include liability coverage.

For home insurance, US Consumer Financial Protection Bureau regulations put in place in the Dodd-Frank Act require companies to give you 45 days' notice by letter or other written method before charging you for force-placed insurance.

Force-placed homeowners insurance is different from mortgage insurance. Mortgage coverage protects your lender if you default on your mortgage. Your bank may require it if you made a smaller down payment.

Force-placed flood insurance

Homeowners who do not buy the required flood insurance for their mortgage may be force-placed into a flood insurance policy by their lender. Your mortgage company may opt for the National Flood Insurance Program (NFIP) or private flood insurance. NFIP rates are set by the government, so it's possible that force-placed flood insurance will be the same price if your lender opts for NFIP coverage.

Even though flood insurance protects your home, it's not subject to the same rules as force-placed homeowners insurance.

Force-placed car insurance

It's easy to accidentally end up being issued force-placed auto insurance, because it's possible to have enough coverage to register and legally drive your car but not meet your lender's requirements.

There are many parts to a car insurance policy, including liability protection, bodily injury and damage to your car, but your auto lender is primarily concerned with comprehensive and collision coverage. Most car loans and leases require those coverages, and if you don't buy them (or you remove them from your policy), you're likely to have those coverages force-placed on you. Make sure you're meeting your lender's requirements to avoid extra charges.

What to do if you have force-placed insurance

Carrying force-placed insurance is never going to be a better option than buying your own insurance, so you should work quickly to remove it. Your mortgage or auto lender can have multiple reasons to believe you don't have sufficient coverage to meet the terms of your loan. You'll need to contact them and your insurance company to figure out the cause. It may be that you have sufficient coverage but your lender has no record of it; your coverage levels don't match the requirements; or your coverage ended without your knowledge.

Reasons you may have been issued force-placed insurance

  • Your insurance coverage lapsed due to a missed payment.
  • Your policy ended, and you did not renew it.
  • Your lender does not have proof of your insurance policy.
  • Your coverage does not meet the minimum amounts required by the loan.
  • You switched insurance companies but the loan company was not notified.

Once you've determined the cause of the issue, you can work to fix it. If the problem was a lack of documentation, you can send proof of your insurance coverage to your lender and the problem should be resolved. In this case, you'll usually be refunded any premiums paid for force-placed coverage.

If you have force-placed insurance because your insurance coverage ended, buy a new policy promptly. Force-placed coverage is likely to provide far less protection than a normal insurance policy, especially for cars. A force-placed auto insurance policy may only include comprehensive and collision coverages, which do not meet the legal insurance minimums to drive in most states. Driving your car without proper insurance is illegal and can have serious consequences.

Regardless of the reason, you should pay the force-placed insurance bill (unless you're able to completely resolve the issue before payment is due). Failing to pay the bill could put you in violation of the terms of your loan. At that point, your bank may require you to pay the entire balance of the loan, repossess your car or sue you to reclaim the lost funds — all of which are far more costly than one extra bill. It's far better to pay the extra insurance premium, rather than risk losing your car or home altogether. You can often get a refund for unused premiums, once you've provided proof of regular insurance coverage.

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