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What Happens if Your Home Insurance Lapses?

House damaged by a fallen treeAC

Your mortgage documents require you to keep your house and property insured. If you let your homeowners insurance coverage lapse, the mortgage company will get coverage for you that protects the payment of the debt you owe them. This type of insurance is called force placed or hazard insurance, or sometimes referred to as lender placed insurance.

This insurance is BAD for the homeowner! It is very costly and does NOT protect you, the homeowner. Many people believe this coverage protects their contents. Wrong! The insurance your mortgage company gets for you is much more expensive than insurance you would obtain on your own. The mortgage company charges you an inflated price for insurance that does not protect you or your property at all.

Your mortgage company is not under any obligation to find the cheapest rates for you. They will not look around and try to find the best terms for you or the strongest insurance company. They are not required to protect the contents of your home or protect you from people who are injured on your property that may sue you. To make matters worse, the policy your mortgage company will obtain only covers the value of the property up to the loan balance. In other words, if does not cover any equity in the house. And the lender is the only one protected. If the house burns down, only the mortgage company is protected. You get nothing.

In most cases, you, the homeowner do not have the right to cancel the hazard insurance policy – only the lender can cancel it. Your mortgage lender has the right to purchase forced placed insurance to cover your house and they can do this if the property has no insurance or it does not have enough insurance.

Usually the premiums are higher for this type of insurance because the insurance industry believes these types of properties are at a higher risk of loss if the homeowner has chosen not to insure his own property. The increased cost of this insurance coverage is your responsibility. Any money your mortgage company spends for force placed insurance will be added to your loan.

Bottom line – protect your home and your property – get your own insurance coverage ASAP!

Disclaimer: This blog is intended as general information purposes only, and is not a substitute for legal advice. Anyone with a legal problem should consult a lawyer immediately.