You’ve just received a letter from your insurance company advising you that they are cancelling your policy for “Risk Reduction”.
Or another letter might advise you that due to bad claims experience in your area, the insurance company is raising your rates by 25% or more.
The temptation for both of these scenarios might be to just let these policies lapse.
After all, the bank can always take out home insurance on your behalf.
If the Homeowner cannot provide proof of Home Insurance coverage, the Bank will buy an insurance policy for the homeowner- this policy is called Force-placed Insurance.
At first glance, this might not seem like a bad thing.
After all, the homeowner has coverage on the home, has satisfied their mortgagee, and did not have to go through the process of finding a homeowner insurance carrier writing in Florida.
Better yet, in cases where the homeowner has an escrow account, the bank will pay the premium from the escrow account and bill the homeowner monthly.
Sounds great, right?
Wrong! These force placed insurance policies only cover the bank’s interest in the property and even worse, they cost 2 to 5 times more than a conventional policy.
What’s wrong with force placed insurance?
John Doe owns a home valued at$400,000. The Replacement Cost (how much it would cost to rebuild the home) is $350,000 and his land is worth $50,000.
He has a $250,000 mortgage with Bank X and has been non-renewed by his Homeowners Insurance Company because they are reducing their exposure in Florida (Sound familiar?).
He receives a letter saying that Bank X will buy a policy for him and pay it from his escrow account and bill him monthly.
Since he was already paying $4000, John decides to let the bank buy the policy for him.
Bank X buys a policy with their Insurance carrier that specializes in Force placed Insurance. They charge $5500 for a $250,000 policy.
(I’m being very kind with this pricing- it could be as high as $10,000).
Since the bank only collected enough money in escrow to pay a renewal based on $4000, he is immediately short $1500 in his escrow account, so they add $1500 to his next mortgage payment to pay the higher insurance bill.
It doesn’t end there.
Since the bank collects the insurance premium for next year from his monthly mortgage payment, they need to adjust this to reflect the extra $1500 they’ll need for next years Insurance.
So add another $125 a month to his monthly mortgage payment.
So you pay a little more for bank home insurance. Is that all?
The increase in price is only the beginning of a potential disaster.
Since the policy is purchased to protect the bank’s interest (Loan Amount), the policy only covers the $250,000 amount of the mortgage- not the actual cost to rebuild the home!
It gets worse.
The policy will not cover John Doe’s personal property or contents.
He’ll have no coverage for other structures, loss of use, and no liability (lawsuit) coverage.
If his home were to burn in a fire, John Doe’s bank would be paid the $250,000 they are owed and John Doe would own the home with no mortgage.
Or should I say the burnt shell of a home with no coverage for the personal property- furniture, clothing, electronics etc- that burned inside the dwelling.
How do you avoid of Force-Placed Home Insurance?
The solution? Contact us and we’ll find you a policy that covers Replacement Cost to rebuild your home, the contents in your home, and the liability you need against lawsuits arising out of your premises.
Best of all, it will cost less, with less impact on your monthly mortgage payment, and we can bill your mortgagee!
Don’t let the Bank buy you Home Insurance.
Contact the independent agents at Cronin Insurance.
Low rates, Choice of Companies, and personal advice.
Cronin Insurance is the Wise Choice.
