What is force-placed insurance, and how can you avoid it?

What is force-placed insurance?

Force-placed insurance is a policy purchased by a lender to protect its investment in your home if you fail to obtain the required coverage. Lenders require insurance as part of the mortgage contract. Typically, the lender determines specific requirements, such as coverage and limits, and lists them on your loan document. You can choose more coverage and higher limits, but you must meet the minimum requirements.

If you let your insurance policy lapse or don’t have sufficient coverage, the lender can acquire insurance on the property and bill you. This force-placed insurance usually doesn’t have the amount of coverage you could obtain on your own and is more expensive.

“Force-placed insurance, also known as lender-placed insurance, is an important tool for lenders, but it’s certainly not an ideal fallback for homeowners,” said Aaron VanTuyl, communications and social media manager for the Washington state Office of the Insurance Commissioner. “It only protects the lender’s financial interest in a property. In the event of a loss, the homeowner themselves is unprotected to rebuild the home.”

Why do lenders use force-placed insurance?

When you take out a mortgage or home loan, the lender needs assurance that their investment is protected. For example, if your home burns down, the lender will still want the loan to be paid off. 

Your mortgage contract typically includes specific insurance requirements and details regarding the consequences if you fail to meet those requirements. Force-placed insurance is that consequence: It allows the lender to protect its investment if the homeowner fails to do so. 

When would force-placed insurance coverage be required?

Lenders prefer that homeowners acquire insurance proactively. However, in certain situations, a lender may add insurance without the homeowner’s input.

A lender will add force-placed insurance if:

• You allow your homeowners policy to lapse at renewal.
• Your insurer cancels coverage for any reason, such as not paying premiums, and you don’t replace it immediately.
• You don’t have sufficient coverage and limits as required by the lender.
• You need additional coverage, such as flood insurance, but don’t purchase it.

What does force-placed insurance cover?

When a homeowner buys insurance, it includes more than just coverage on the dwelling. For example, a standard home insurance policy covers personal belongings, personal liability, and loss of use to help pay for somewhere to live if the house is damaged.

However, force-placed insurance only covers the lender's requirements, typically just the dwelling. Additionally, the structure is only covered to the loan amount rather than the home’s replacement cost.

For example, if you owe $100,000 on your property, the lender will only add insurance to that limit. If it costs $250,000 to replace your home after a catastrophic event, you’ll only be covered up to your loan amount. That way, the lender pays off the loan, leaving you with substantial out-of-pocket costs.

Force-placed insurance is not a good option for homeowners since it doesn’t offer enough coverage.

How does force-placed insurance work?

Force-placed insurance is usually a last-resort option. Since most homeowners prefer to have their own insurance, lenders only purchase force-placed insurance after all else has failed.

First, the lender must be aware that coverage has lapsed or is insufficient. For example, if you live in a flood zone and fail to add flood insurance to your policy, your lender can buy the coverage for you.

Once your lender knows you lack sufficient coverage, they must notify you before adding insurance. Generally, they must notify you twice, 45 and 15 days before adding force-placed insurance. The notices are designed to inform you that your insurance is insufficient and notify you of the premium for the force-placed insurance.

Finally, your lender bills you for the force-placed policy. Premiums for this type of insurance are significantly more expensive than traditional coverage. Failing to pay can result in the lender foreclosing on your home.

How force-placed insurance impacts your mortgage payments

If your lender has to purchase insurance for you, it usually pays for it upfront and then adds the cost to your mortgage payments. Since force-placed insurance can be up to 10 times more expensive than a policy purchased by a homeowner, this can significantly increase mortgage payments, putting a substantial financial strain on the homeowner.

Additionally, if you have an escrow account for taxes and insurance, the mortgage company can deduct the insurance cost, leaving you with a deficit when it’s time to pay property taxes.

How much is force-placed insurance?

Force-placed home insurance is costly, often up to 10 times the cost of a standard policy. This significant expense is due to the insurer not having the typical information to base a rate. Insurers usually look at the age and condition of the home, any safety upgrades, such as a fire suppression system, and owner information, like the number of claims they have filed in the past. Insurers offering force-placed coverage don’t perform a home inspection or have any of this information, and they have to calculate a premium based on the maximum possible risk.

Force placed insurance regulations and requirements

The Consumer Financial Protection Bureau (CFPB) has regulations that lenders must follow to add force-placed insurance.

Regulations regarding force-placed insurance include:

• Legitimate reasons as to why the insurance is necessary
• Time requirements for initial and reminder notices
• Notification of all costs associated with adding coverage
• Refund of the premium if the homeowner acquired coverage and the policies overlap
• Appropriate notification for renewal of the policy

Force-placed insurance vs. homeowners insurance

Force-placed insurance is more expensive and offers less coverage than a policy chosen by the homeowner. It can be up to 10 times as expensive and only covers the dwelling up to the loan amount.

On the other hand, a homeowners insurance policy premium is determined by factors like the age and condition of the property and is typically much cheaper. Homeowners insurance includes liability and personal property coverage, and the limits can be increased.

Additionally, many states offer homeowners an alternative to force-placed insurance if they cannot find coverage. These are called FAIR plans or insurers of last resort.

“In Washington, we have the WA FAIR Plan, our insurer of last resort,” said VanTuyl.  “If a property owner is unable to find insurance coverage in the regular market, it is an option to prevent people from needing force-placed coverage to satisfy their mortgage requirement.”

How to remove force-placed insurance

Fortunately, if your lender adds force-placed insurance, you’re not stuck with it forever. There are ways you can remove the coverage and get better protection.

To remove force-placed insurance:

• Learn why your lender added force-placed insurance. Find out if your homeowners coverage lapsed, you didn’t pay your premium, you don’t have enough coverage or there is another reason why the coverage was added.
• Find coverage. Once you figure out the problem, you can correct it by obtaining new coverage, paying your premium, or adding coverage, like flood insurance.
• Notify your lender. Send proof of insurance and any other required documentation to your lender.
• Ask the lender to cancel the force-placed insurance. Once you have shown adequate coverage, the lender must remove the force-placed policy.
• Request a refund. If you've paid the premium in advance, you should be entitled to a refund for any policy overlap.

Sources

Consumer Finance Protection Bureau. “§ 1024.37 Force-placed insurance. | Consumer Financial Protection Bureau.” Accessed June 2025

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