Danette O'Neal, PhD

Why might I be slapped with force-placed insurance?

• You do something that causes your own insurance company to cancel your home owners policy (say you file a fraudulent claim).

• Insurance companies stop offering policies in your area and you can’t find replacement coverage.

• You don’t escrow for insurance and you fail to renew your policy.

The problems with force-placed insurance

• Lenders collect payments from the insurance company providing the force-placed policies. That’s a conflict of interest since it incents them to go with the company offering the highest referral fee versus the one offering the best value to home owners.

• Sometimes the lender makes a mistake and says you don’t have a home owners policy when you do. If you call to get this mistake corrected, you likely end up talking to someone at the insurance company, not the lender’s office. If you do have insurance, the force-placed insurance company loses a customer, so the person you’re talking to at the force-placed insurance company has no incentive to fix the error.

• Force-placed can apply to flood insurance, too. Your property can be in a flood zone even though your home isn’t. That happens when the flood zone covers only part of your property — the part your home isn’t on. Convincing the insurance company person that this is the case can be challenging.

• Sometimes insurance companies pull out of markets. Florida, for example, had to set up a state wind insurance fund because home owners were unable to get coverage after big hurricane losses there. Between the time the insurance companies pulled the plug and the state set up the wind insurance pool, home owners couldn’t get coverage and were force-placed by their mortgage companies.