Force-placed insurance coverage¬†protects a bank’s investment in a home, automobile or other piece of property. Here are some answers to frequently asked questions about this kind of insurance.

What Is It?

When a property owners’ insurance policy is canceled or lapses for any reason, the bank offering the mortgage or other loan might take out a policy to cover the property. This force-placed insurance is also known as collateral protection, creditor-placed or lender-placed insurance. This scenario might also occur if the bank deems a homeowner’s insurance or flood insurance policy to be insufficient.

Who Pays?

The customer (the person with the mortgage or loan) pays for force-placed insurance. The lender does not pay. Force-placed insurance is typically more expensive than a policy taken out by the customer because the bank does not shop around for the best price but a person typically does.

Who Benefits?

The lender receives the payout should a claim be processed. However, it is common for the lender to give a portion of the proceeds to the customer so he or she can repair the property. After all, it is in the bank’s best interest to have the property in top condition so it may be resold in case the customer defaults on the loan.

These are just a few points about force-placed insurance.