Lender-placed insurance is part of the mortgage process. In almost all home loans, the buyer pledges to maintain sufficient insurance against damage by fire or other perils. If the insurance lapses or is cancelled for any reason, the mortgage lender then places a policy on the property, through an insurance provider such as one of the Assurant Specialty Property companies. This insures that the property remains protected against damage – safeguarding the interests of the bank and the homeowner alike.

Lender-placed insurance is a safety net that protects both parties with a financial interest in the house – the mortgage company and the borrower. Policies typically insure covered repairs at replacement cost, not just the unpaid mortgage balance. Assurant has hundreds of claims representatives who work every day assisting homeowners who were insured by a lender-placed policy when fire or other misfortune struck. Without it, their home would not have been protected.

Lender-placed insurance has been a critical part of the mortgage process for decades. It protects the home against damage, and protects the collateral, which supports lenders’ ability to make loans. It’s required by most lenders, as well as governmental mortgage authorities such as Fannie Mae and Freddie Mac.

“Force-placed insurance” is really a misnomer. No one is “forced” to carry Assurant Specialty Property property insurance. Lender-placed insurance is placed by a lender only after a borrower has failed to provide proof of required coverage. Homeowners – who have voluntarily agreed to maintain insurance as part of their mortgage – may always renew or replace their existing coverage prior to the issuance of a lender-placed policy (sometimes called “creditor-placed”). Homeowners also may choose another insurance company at any time, at which point a lender-placed policy will be cancelled.

Lender-placed insurance usually does cost more than a typical hazard policy. This is because, unlike a typical consumer-purchased policy, which is subject to individual risk underwriting, companies such as the Assurant Specialty Property companies agree to insure every lapsed property in a lender’s mortgage portfolio, sight unseen -- regardless of condition, occupancy or loss history. The majority of these lapsed properties are in hurricane-prone states. Obviously, these factors mean Assurant is assuming higher risks, so higher premiums are required to cover potential damage. At Assurant, our average lender-placed policy costs 1 ½ to 2 times the cost of the previous policy in place.

Ironically, Assurant works hard to encourage customers not to get lender-placed insurance. We generally follow a 75-day notification process before a policy is placed. Our large team of dedicated professionals make extensive efforts to verify insurance, including contacting borrowers, agents and other carriers. Every customer is contacted multiple times to alert them to a possible lapse, and reminded to restore coverage. Only when they don’t is a lender-placed policy issued.

It’s standard in the general insurance industry for commissions to be paid to licensed agents who generate policies. In some cases, those agencies can be owned by financial institutions -- and banks do have expenses associated with their insurance programs, including the costs of advancing premiums, billing and collections. Commissions are generally comparable to the general insurance market, and lenders disclose any such compensation to borrowers.

Not very common. On average, fewer than 15 percent of mortgages will face even a possible break in insurance coverage. At Assurant, with our homeowner notification process, only about 2 percent ultimately move to protection by a lender-placed policy.

We comply with state and federal insurance regulations in all 50 states, and are monitored by state insurance departments.

Assurant has a strong record of accuracy, and we have extensive processes in place to limit any erroneous placement of policies. We monitor literally millions of pieces of insurance and mortgage information for many of the leading U.S. banks, and we’ve invested millions of dollars in industry-leading technology to do it quickly and accurately. When prior coverage does turn out to be in place, it’s usually because the homeowner has changed insurance without telling their mortgage servicer. All the homeowner has to do is show proof of continuous coverage, and the lender-placed policy is cancelled at no charge. There’s no incentive for us to place a policy incorrectly; the premium is refunded, and it’s extra work and expense for us.

Typically not. As the name implies, lender-placed insurance is put in place by lenders under the terms of the mortgage, to safeguard their financial interest in the property (as well as the homeowner’s). Mortgage lenders have no such contractual interest in personal belongings, so they typically do not insure them. This is explained to borrowers multiple times as part of the lender-placed notification process.

Notify the mortgage servicer promptly upon any change in homeowners insurance. Keep copies of insurance documents and make sure premiums are paid on time, either from an escrow account or by direct payment. Read any insurance notice carefully, and, if requested, contact the bank or insurance provider promptly. Homeowners always have the right to purchase the insurance coverage of their choice, and we encourage them to do so; only when they don’t will a lender-placed policy go into effect.