Tacoma Bankruptcy Attorney Blog

If you have a home mortgage, you know that you must keep the property insured. You must also insure your lender by listing it as a loss-payee.

In the event you allow your insurance to lapse or fail to name the lender as an additional insured on your insurance policy, the lender will purchase insurance on your behalf and will charge you for it—at an inflated price. This is called force-placed insurance. The cost can be two or three times the cost of insurance that you pay for yourself.

In addition to the inflated price, force-placed insurance does not protect you or your property. Force-laced insurance covers only the value of the property up to the loan balance. It does not cover any equity in your home. If your house burns down, force-placed insurance will pay off your mortgage; and, you will receive nothing. Force-placed insurance will not cover the contents of your home nor will it cover the damages incurred by anyone who is injured while on your property. If the injured party sues you, you are on your own.

This overpriced insurance is a huge profit center for the lender, who gives kick backs to the insurer for selling it overpriced coverage, and a huge liability for you. The lesson to be learned is that you cannot shift the cost of insurance to your lender without risk. Take steps to get your own insurance.

For less money you can get coverage that actually protects you. You need protection even if you intend to walk away from your home. You probably won’t care about the consequences of having force-placed insurance if your house burns down, but you will care if someone sues you for injuries they sustain while on your property. Force-placed insurance will not cover those injuries. You alone will be responsible to pay for the injured party’s damages for so long as your name is on title.

Be careful!

June 1, 2016


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