Force-Placed Insurance
Coverage a lender purchases on a borrower's property when the borrower's own insurance lapses or is insufficient.
What is Force-Placed Insurance?
Force-placed insurance, also called lender-placed insurance or creditor-placed insurance, is a policy that a mortgage lender or servicer purchases and charges to a borrower who has allowed their required homeowners or hazard insurance to lapse, be cancelled, or be inadequate under the loan agreement. Because lenders have a financial interest in the collateral securing the loan, they are contractually entitled to arrange coverage to protect that interest. Force-placed policies typically provide narrower coverage than standard homeowners insurance (often covering only the structure, not the borrower's belongings), and they are significantly more expensive — sometimes two to ten times the cost of a standard policy — making it strongly in the borrower's interest to maintain their own coverage.
Example
A borrower lets their homeowners policy lapse by missing a renewal payment. The mortgage servicer detects the gap, sends notices, and — after 45 days without proof of insurance — purchases a force-placed policy for $3,600 per year and adds the cost to the borrower's escrow account. The borrower could have renewed their own policy for $1,100 per year.
Source: Consumer Financial Protection Bureau — Force-Placed Insurance