What are lender placed insurance claims?
Lender placed insurance policies, also known as forced place insurance policies, are policies that are purchased by a mortgage company in the event a borrower does not provide adequate proof that the borrower has secured insurance coverage for the property. It’s important in this case to be aware that not all insurance policies are the same, and you’ll find out when you attempt to file any lender placed insurance claims. So what’s the difference between this and an insurance policy that a homeowner chose themselves?
Who benefits from a lender placed insurance policy?
If your homeowner’s policy was put in place by your mortgage company, you better believe it is intended to protect their interests. You may be fortunate to get the necessary protections for your own personal life as well, but your needs will not be discussed.
For example, your homeowner’s insurance policy should cover your home for the full amount that your home is worth. This way, if your home is destroyed, your insurance will cover the costs of rebuilding your home to its pre-catastrophe state. However, in the event that you are only covered by a lender-placed policy, your home is likely only covered to the dollar amount of your mortgage, which, unless you just purchased your home, is likely less than the value of the home.
Your mortgage company gets your insurance money, not you
If you’re covered by a lender-placed policy, you are not the primary insured – your mortgage company is. This means that if you submit an insurance claim, your payout will be sent directly to the bank, and they say where that money goes, not you. This settlement may very well go to the repairs they are supposed to cover, but they also may go to paying down the mortgage. If this happens, it’s your responsibility to communicate with the bank to get that money where it’s supposed to go.
Your home is protected, but your property isn’t
Because this type of insurance company is meant strictly to protect your insurance company, anything that does not belong to them will not be protected under your policy. This means the items inside your home are not covered by your homeowner’s insurance policy. If your home suffers a fire and is completely destroyed, you will only be able to recover the loss of the home itself.
This also means that in situations where your home is temporarily uninhabitable (for example, during a sinkhole or any other repairs), the cost of living expenses to house and feed you and your family will not be reimbursed.
Should I even bother filing a claim?
Now that you know what makes a lender-placed policy different from a policy that a homeowner chose, you may wonder where that puts you when it comes to filing a claim. Well, this difference makes filing a sinkhole claim slightly more complicated. However, a lender-placed policy does provide coverage where there may not otherwise be coverage available.
Therefore, even if you may not get the exact coverage you’d like a homeowner with a lender-placed policy should never be deterred from filing necessary lender placed insurance claims.