Forced-place insurance, sometimes called lender-placed or creditor-placed insurance, is a policy your mortgage or auto lender buys when your personal insurance policy expires, is canceled, or falls below required coverage. This insurance safeguards the lender’s investment in the collateral (such as your home or car), not your personal belongings or liability.
Loan agreements for mortgages or auto loans require you to maintain adequate insurance on the collateral. When your insurance lapses and you don’t provide proof of new coverage, the lender steps in to protect their financial interest.
Here’s how forced-place insurance works:
- Your insurer cancels your policy or it lapses.
- Your lender receives a notification and sends you one or more warning letters, typically giving you about 45 days to provide proof of insurance.
- If you miss the deadline, the lender purchases forced-place insurance on your behalf.
- The cost of this expensive policy is added to your loan balance or monthly payments.
Forced-place insurance policies tend to cost two to five times more than standard homeowner’s or auto insurance policies you can buy yourself. According to the Consumer Financial Protection Bureau (CFPB), lenders are allowed to charge you for this coverage starting from the day your own policy lapsed.
Besides the high cost, the coverage is usually minimal. Forced-place insurance generally covers only the property’s structure or the vehicle itself to protect the lender’s interest. It often excludes personal possessions, liability protection, and additional living expenses in case of damage.
For example, if your homeowners insurance lapses and the lender places forced insurance on your home, it may not cover your furniture, electronics, or liability if a guest is injured on your property.
To avoid forced-place insurance:
- Pay your insurance premiums on time, ideally through automatic payments.
- Read lender communications carefully and respond promptly if warned about coverage lapses.
- Provide your lender with proof of insurance immediately if you renew or change your policy.
If forced-place insurance is added, providing your lender with timely proof of your own coverage must lead to cancellation of the lender-placed policy and a refund of overlapping charges, as required by law.
Related glossary articles include Collateral Protection Insurance (CPI), which covers similar lender-placed coverage concepts, and Hazard Insurance, which is essential for homeowner protection.
For more resources, see the Consumer Financial Protection Bureau’s guide on forced-place insurance here.
