Lender-placed insurance is best avoided

Q: We our have let mortgage lender choose our hazard insurance for our home. Although it was more expensive, we figured that if our lender picked it, then it must be great coverage. A friend just told me this is not the case. What is the truth? — Frank A: This type of homeown- er’s insurance coverage is known as “force-placed” or “lender-placed” insurance. All mortgages require that you keep your home adequately insured and allow your lender to purchase its insurance policy, which you must pay for, if you do not maintain the proper coverage. Because your lender is not concerned about the price of the policy and may have a relationship with the insurer, these policies are often more expensive. Insurance sometimes gets force-placed because the homeowner let the policy lapse, although many people are surprised and only find out when their payments increase. If your lender does not get the proper notice each year from your insurance carrier, it will send you a letter. However, many people ignore the letter or don’t recognize its importance. When your lender not does hear from you, it finds its own policy and sends you the bill. The lender-placed policy is primarily concerned with protecting the lender and is often missing essential coverage for personal items and liability protection. Unfortunately, most homeowners only find out about this after a fire, theft or flood. Always open and carefully review every letter you get from your mortgage lender. If your payment goes up unexpectedly, call to find out why. If it’s because of forceplaced insurance, immediately find yourself a policy and let your lender know so it can adjust your account. Gary M. Singer is a Florida attorney and board-certified expert in real estate law. Contact him at www.sunsentinel.com/askpro or follow him on Twitter @ GarySingerLaw.