Lender-placed insurance coverage is a type of policy placed by a financial institution on a home or property when the borrower fails to maintain personal coverage.
Mortgages require borrowers to have adequate protection on their property. Sometimes an owner fails to meet the requirements, and the lender needs to protect its financial interest in the property by force-placing another policy. Possible circumstances where this is necessary include the following:
Lienholders have the right to protect their financial assets. Lender-placed insurance coverage safeguards the bank, the property and the homeowner. They typically cover only the amount due to the lender but do not include liability or personal property protection. Future mortgage payments reflect the cost of this additional insurance.
When an owner has an expired or insufficient policy, mortgage lenders need to protect their financial interest in the property by obtaining coverage.