When you obtain a mortgage to buy a house, there will be several requirements you must follow. One of the most important ones is keeping a sufficient level of homeowner's insurance on the property. If you fail to do this, you will most likely receive a notification from your lender telling you they have purchase a lender-placed insurance policy for you.
What is lender-placed insurance?
Lender-placed homeowner's insurance is a type of policy lenders purchase when borrowers fail to keep home insurance on their homes. A lender-placed policy is typically for an amount equal to the amount a person owes on his or her loan, and the policy will list the lender as the primary lienholder of the property.
This means that your insurance company will get paid the amount of money you owe on the house if the house is destroyed.
Why would your lender do this?
A lender will purchase this type of policy to protect itself. The reason your lender will require that you have home insurance is primarily to protect the lender. If your house burns to the ground, your home insurance company will pay the lender the amount you owe on the house. This reduces the risk a lender assumes when issuing a mortgage loan.
When you do not follow through with keeping home insurance, your lender will basically force you to keep the agreement by obtaining a policy for you.
How will this affect you?
There are two main ways a lender-placed insurance policy will affect you. The first way is by costing you money. The lender may pay the premiums for the policy up front; however, you will get billed for it, and you will have to pay the lender the amount they say you owe. The costs of these policies may be higher than normal policies too.
The second way a lender-placed policy will affect you is by not offering you any money if the house burns down. These policies are only purchased to protect the lender; they are not to protect you. If you lose everything in your house to a fire, you will not receive a check from the insurance company for your loss of personal belongings.
If you currently do not have homeowner's insurance on your house and want to avoid paying for lender-placed insurance, you should call an insurance company (like Weeks Insurance & Financial Services Inc home insurance) to find out how much a policy will cost to insure your home and belongings.