Monday, October 13, 2014

Don't Keep Force-Placed Home Insurance! Here's Why.

A mortgage is a fact of life for many homeowners. Studies show that nearly two-thirds of homeowners in the United States have some sort of mortgage or other loan on their homes. 

Most home buyers begin their home ownership with their own home insurance policy, but due to various reasons some of these policies cancel or lapse, and the homeowner does not take the opportunity to seek coverage elsewhere or get their original policy reinstated. 

The mortgage company, who is typically named on the policy, receives notification of this, and with no proof of insurance they eventually place a force-placed (also called lender-placed) insurance policy on the home. 

In this article, I will explain why it's best to get your own home insurance policy (and have the force-placed insurance policy removed), but first I must mention this: the fact that force-placed coverage exists at all is a good thing. It prevents the homeowner (and lender) from facing a tremendous burden in a catastrophe, such as fire, tornado, or hurricane. 

This force-placed insurance is a safety net of last resort, but too many homeowners complacently accept this insurance and fail to shop for themselves. 

Here are some additional reasons to get your own home insurance policy (or keep your existing policy): 

  • Force-placed home insurance policies typically offer more limited coverage compared to your own policy. If you read your force-placed insurance policy, it may even mention in the first few pages that there is better coverage available with your own home insurance policy. Many force-placed policies do not include personal property or liability coverage, among others. Remember, these policies exist primarily to protect the lender's interest in the home.
  • Force-placed insurance policies sometimes cost you more. You can often find a better rate by getting your own policy. The force-placed policies aren't free; you're being charged for it by your lender. 
  • Escrow accounts allow you to spread out the cost of your home insurance policy over 12 months. Worried about having to pay an annual premium all at once if you get a new policy? If you take advantage of escrow options with your lender, you can have the costs of home insurance (and often property taxes) paid out of this account; you only pay a fraction of this as part of your monthly mortgage payment. Escrow accounts are reviewed and adjusted annually by many lenders.
  • With your own policy, you may be eligible for discounts on other insurance. If you get your own home insurance policy, you may qualify for certain discounts if you get more than one policy with the same company or agency. You're missing out on this opportunity with a force-placed insurance policy. 
Hopefully now you have a better understanding of the drawbacks of keeping a force-placed home insurance policy. It's good that it's there, but you can often do much better. 

If we can help with a home insurance quote, please contact us