What Is Force-Placed Insurance?
When you take out a loan to buy a home or a car, the lender usually requires you to maintain an active insurance policy. If you fail to provide proof of coverage, the lender may obtain a force-placed insurance policy on your behalf.
Force-placed insurance is a policy purchased by your bank or lender to protect their financial interest when you do not provide adequate insurance documentation. It often costs significantly more than standard coverage.
Regulatory Requirements and Notifications
The Consumer Financial Protection Bureau (CFPB) requires lenders to notify borrowers before imposing force-placed insurance charges.
- You should receive at least two written notices from your lender.
- The first notice must be sent at least 45 days before you are billed for force-placed insurance.
- This notice explains whether your existing policy has expired, is inadequate, or if proof of valid coverage has not been received.
- A second and final notice must be sent at least 30 days after the first one—or 15 days before charges begin.
Steps to Take
Check that your own insurance policy meets the loan’s coverage requirements. If it does, confirm that your lender has received valid proof of coverage. Sometimes administrative errors or missing documents may trigger unnecessary force-placed coverage.
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Author’s Summary
Force-placed insurance protects a lender when a borrower lacks proof of coverage, but borrowers should act promptly to avoid higher, unnecessary charges.